To BEE or not to BEE? For exempt micro enterprises it should not be the question

Exempt Micro Enterprises have a huge advantage in the race to reach Level 1 on the BEE Scorecard and they stand to gain considerable benefits, argues B-BBEE specialist, Deon Oberholzer.

The topic of the BEE scorecard continues to raise groans from many business owners, yet what most small businesses do not realise is that the BEE scorecard system is designed to make life easier for them. Because compliance with the Codes for Broad-Based Black Economic Empowerment (B-BBEE) is still widely perceived as onerous, exempt micro enterprises (EMEs) often do not know how easily they can benefit from the system.

According to the B-BBEE Codes, an exempt micro enterprise has a turnover of less than R5 million per annum (the threshold is R2.5m in the tourism sector and R1.5m for built environment professionals in the construction sector). As an EME, you automatically qualify as a Level 4 contributor, receiving an allocation of 65 points and are recognised as a 100% BEE company for procurement purposes; and if your business is black-owned, you get bumped up to Level 3.

EMEs are exempt from the usual compliance requirements that are needed to reach Level 4 status. Unfortunately the term “exempt” tends to lead to complacency in the micro business sector, with many business owners believing that they do not need to participate in the B-BBEE drive to open the economy to all. Some also feel that it is not necessary to get a valid BEE Certificate at all.

But this view is misinformed. There are very good reasons for EMEs to engage in B-BBEE and to raise their status to an even higher level. The process has been made very easy to get there.

As an EME, you may comply with the requirements of a Qualifying Small Enterprise (QSE). This is where the ease of compliance comes in: QSEs can score a generous 25 points per code and, if compared to their existing base of 65 points, they do not have very far to go to reach a higher level. Level 3, 2 and 1 contributors score within 75 points, 85 points, 100 points or more respectively (see Scoring System Chart below).

Then it is important to realise that the amount a QSE needs to spend to score 25 points is minimal, with the added benefit that the spend can be a direct investment in your own business. By way of example, let us assume that your EME has a nett profit after tax (NPAT) of R150,000. Here are four possible scenarios for scoring an additional 25 points:

1. Spend 2% of NPAT on Enterprise Development (ED): 2% of R150,000 amounts to R3,000; so lend R3,000 (yes, loans qualify as ED spend) to a black-owned micro business that will become part of your supply chain and supply you with the goods you want. Then claim 25 points for ED.

2. Spend 1% of NPAT on Socio-Economic Development (SED): budget R1,500 for SED to benefit black beneficiaries, leverage some marketing exposure from this and claim 25 points for SED. Education for a black child counts – if you do not know how to get involved with a black school, ask any one of your black employees.

3. Procure at least 40% of your supplies or services from a verified BEE company and score another 25 points. White owned EMEs count, so this could be your auditor, advisors and/or any of the smaller businesses that you support.

4. Spend 2% of your payroll on Skills Development (SD): if a few of your existing staff are enrolled on any SETA accredited learnerships, you can get credit for their salaries as well. Claim 25 points for SD.

With only limited effort and a bit of smart thinking you can easily and affordably raise your BEE status to a 100+ score. And if you happen to have a black partner, or you are a black EME already, the bar is even lower. In many instances, if you just take the time to understand the rules, the game becomes much easier.

So what are the benefits of a high level scorecard? To start with, even as a Level 3 or Level 4 EME, your clients can get recognition for what they spend with you, so it is worth getting a verification certificate to add value for your clients and open some doors for your business.

It makes good business sense to improve your scorecard, as it could earn you a considerable competitive advantage. With a valid Level 2 or 1 QSE BEE Certificate, you do not look like a minor player and you are taken much more seriously. You are perceived as progressive, adaptive and professional and it takes you to the front row of the selection for procurement.

In the case of government tender procedures, as a Level 1 or 2 supplier, EMEs are in the pound seat for contracts valued at under R1 million. You will score high points for your BEE status which could compensate for scoring a bit less in terms of price – in other words, you could charge a bit more than your competitors, but still get the contracts.

The beauty of B-BBEE is that it both enables you to strengthen your brand and grow your business, as well as supporting the entire raison d’être of B-BBEE – that businesses need to get involved in creating opportunities for those who were previously excluded from entering the economy. There is no reason why EMEs should consider themselves exempt from this responsibility.