“How do I track our B-BBEE spend as we grow?”
One of the biggest operational shifts for South African businesses whose annual turnover moves through the R10m threshold is the growing relevance of tracking your Broad-based Black Economic Empowerment (B-BBEE) spend.
Businesses under the R10m turnover threshold are classified as an Exempted Micro Enterprise (EME) and this means that they can submit an affidavit affirming their B-BBEE status.
As businesses move through above the R10m threshold – but less than R50m – they are classified as Qualifying Small Enterprises (QSEs). Unless the business has at least a 51% black ownership, the QSE will need to go through a formal B-BBEE verification.
This means that you will need to accurately measure the various elements of the B-BBEE scorecard including:
- Ownership
- Management Control
- Skills Development
- Enterprise and Supplier Development (Enterprise Development, Supplier Development and Preferential Procurement) – ESD
- Socio-Economic Development (SED)
Operationally, this will require a shift in your financial function from a couple of perspectives:
- A review of your existing suppliers and their B-BBEE ratings
- Formal tracking of the money you spend on procurement and skills development
- Proactive review of Enterprise and Supplier Development (ESD) components
Let’s unpack these at a high-level:
Reviewing your existing suppliers:
Often businesses who have shifted from the EME to QSE environment have not taken strategic decisions around the Ownership and Management Control. This means they need to focus on Skills Development, ESD and SED and extract maximum points from these investments.
As a small business, you have invariably built up a variety of suppliers along the way. They may be friends, family or other SMEs who have walked an entrepreneurial journey with you. Now things are going to be very different – particularly if you have limited input costs – particularly if you are working in a business such as a technology or professional services firm.
Formal tracking of your B-BBEE spend:
Once you have reviewed your suppliers you are now going to have to be far more deliberate around tracking your spend with these suppliers. The number of Rands you spend with a Level 1 rated (135% Preferential Procurement) will be far more valuable than money spent with a Level 8.
This is why you will notice that many organisations – particularly those supplying banks, insurers and mining houses – are finding themselves having to achieve a minimum of a Level 4.
While you may be able to track a handful of suppliers early on, you may find it easier to work specialist B-BBEE software that can integrate with or work alongside your existing financial platforms.
Remember that your investment in this B-BBEE software can also count toward procurement recognition.
This will also apply to the money you spend on Skills Development elements like learnerships, bursaries as well as formal and informal training.
Proactive review of ESD elements:
Enterprise Development. Supplier Development and Preferential Procurement are going to be your next challenges.
Preferential Procurement is covered above – identifying qualifying suppliers will be important at this point in your business development.
Enterprise Development is relatively straightforward – you can identify a beneficiary which sits outside your supply chain and find ways to support them through a combination of financial and non-financial support.
Supplier Development is trickier – particularly if you have a limited pool of suppliers to draw on. You can potentially look at working with professional services firms such as lawyers, funding consultants, financial services firms etc. to help you here.
Conclusion
As your business matures and your revenue pushes you from an EME into the QSE realm, your operations are going to change materially.
Unless you have a definitive strategy around tackling Ownership and Management Control, you are going to have to meticulously track spend of Skills Development and Procurement.
If you are running a growth business and are looking to track your spend, please do not hesitate to contact us for a consultation.
Read our recent related article on “When do I need a B-BBEE consultant”