No matter how small your business, it’s best to ensure you comply with B-BBEE rules

The B-BBEE policy system provides the country with a growth strategy that aims to promote a more equitable and economically inclusive society that will help South Africa realise its full economic potential.

Small businesses, as economic drivers and engines for job creation, have an important role to play in contributing towards this national objective, says David Morobe, executive general manager for Impact Investing at Business Partners Limited.

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This is why even small businesses must comply with Broad-based black economic empowerment (B-BBEE) regulations because it can serve as a powerful stepping stone for business growth, particularly if you want to work closely with large corporates and government departments.

Change coming to B-BBEE legislation

“Even as changes to B-BBEE legislation are underfoot, with the legislative process around the Employment Equity Amendment Bill set to conclude in September, it is key for business owners to familiarise themselves with the five B-BBEE basics.”

The majority of small businesses in South Africa currently fall into two categories in terms of B-BBEE. The first category is exempted micro-enterprises (EMEs), small businesses with an annual turnover of less than R10 million which are not currently audited in terms of their B-BBEE status.

The second category is qualifying small enterprises (QSEs), small businesses with an annual turnover of between R10 million and R50 million.

“QSEs are evaluated according to five B-BBEE codes,” Morobe explains. “These are ownership, skills development, management control, enterprise and supplier development and socioeconomic development. Each of these are equally weighted at 25 points, resulting in a score out of 100 points.”

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B-BBEE codes

The ownership score measures the percentage of the small business owned by black individuals and is evaluated at the date of B-BBEE verification.Management control is determined by payroll details and is measured according to the level of control that black employees hold within a small business.The skills development code for a small business measures the extent to which employers support ways in which the competencies and skills of black employees can be improved.A small business’s socioeconomic development measurement is determined at year-end and concerns the extent to which it carries out specific initiatives that contribute towards better economic access for black individuals.Finally, enterprise and supplier development are measured by the extent to which a small business procures goods and services from suppliers with B-BBEE recognition, whether it takes measures to develop other enterprises and assists suppliers to become more economically sustainable.

“Your scorecard will determine your B-BBEE status or the level at which are you recognised,” says Morobe. “Level 1 companies have scores of 100 points and above and the lowest level, level 8, applies to companies with less than 39.99 points.”

If a QSE is 100% black-owned, it will automatically qualify for level 1 status and if it is at least 51% black-owned, it will qualify for an automatic level 2 B-BBEE status. When a QSE is less than 51% black-owned it will be rated according to the scorecard and must be verified by a South African National Accreditation System (SANAS) B-BBEE rating agency.

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Changing legislation and what it means for your small business

With the changes to legislation set to be concluded later in 2022, a research note by consultancy firm, Songhai Advisory, forecasts that the Bill will allow the state to set employment equity targets for certain business sectors.

Most significant for the majority of South African businesses is that the Bill will require the government to limit the issuing of contracts to businesses that are not compliant with B-BBEE legislation.

“Therefore, if a large component of your business model rests on securing state tenders and becoming a supplier to government, it is important that you work towards being B-BBEE compliant. Several large corporates have also developed policies that make B-BBEE compliance a mandatory requirement for their suppliers,” Morobe says.

In addition, as a B-BBEE compliant small business, you will gain access to a number of favourable tax gains and in general, will be better positioned to attract more business opportunities, he says.