1 May has seen the enactment of the revised B-BBEE codes. It has been a bumpy ride as business owners have seen the compliance goalposts moved significantly.
Growing companies need to carefully plan for when they cross the R10 million and R50 million thresholds.
From R10 million to R50 million
The biggest impact of the new codes will be on companies crossing the R10 million turnover mark. Here the relatively easy level four compliant rating that Exempted Micro Enterprises (EMEs) are eligible for suddenly changes to a far more complex rating as a Qualifying Small Enterprise (QSE).
As a business owner going through this phase of revenue growth you will need to comply with all five elements of the new codes. This is a shock to such a small entity’s system, involving:
- Ownership and management structure
- Skills development
- Enterprise and supplier development
- Socio-economic development.
These terms may not be so familiar to you. Time, energy and costs will need to go into planning and managing your scorecard, instead of running a SME.
In a challenging economic climate and business environment:
- Having a poor B-BBEE rating could challenge the survival of your business.
- Dropping below level four will exclude you from close to all government tenders.
- With most corporates also being B-BBEE sensitive, a large amount of B2B work could also go out the door.
Unfortunately, a head in the sand approach to any of the elements could have devastating effects. Not achieving at least 40% on the priority elements will see a company automatically dropping one level. For a QSE, this would mean that at least 40% of points are required for ownership as a compulsory element, and either skills development or enterprise and supplier development.
QSEs can be rated as a level one contributor in the case of 100% black shareholding, or level two with 51% or more.
From R50 million up
If you own a larger private company heading for growth over the R50 million mark, you will be measured under the generic scorecard. While managing expansion, you will be measured under all five elements, with a score of less than 40% on any of the three priority elements leading to a drop by one level.
Making sure that you score points on each element is important, with ownership key. At this stage of growth, if the business isn’t black-owned, securing the right black partner will weigh a lot. Scoring no points on ownership will mean that the company cannot achieve level four even if it scores full marks on all other elements.
Know your company
Take a careful look at your current and projected turnover in order to establish what scorecard will be used to measure your business’ B-BBEE level. Also note that crossing a threshold in the near future will require additional planning.
We recommend: BBBEE Compliance: Why it is Relevant Now!
Know the Act
Make sure that you understand the requirements of the Act and familiarise yourself with the elements.
Every element of the scorecard can be planned out and companies with different structures can attain good levels by ensuring compliance on key elements. For technical matters, bring in an advisor.
Gain the advantage
Compliance with the new codes is onerous and requires effort and cost. But if you achieve a good rating, this will put you ahead of many companies unable to react fast enough.