Tuesday, April 26, 2011

BBBEE and Your Business Startup

Every business startup, in every country in the world, faces many of the same hurdles and challenges.  Finding funding, writing a business plan, figuring out if there is a market for your products and services, and how to market to them, and getting your systems in place are just a few of the challenges that a business startup has to wade through as it goes from idea to company.

In South Africa, however, we have an added hurdle, for many would be entrepreneurs: BBBEE.

Broad Based Black Economic Empowerment, or BBBEE as it’s also known, was, as you probably know, brought in 2003/4 to replace the original BEE system implemented post 1994, as a mechanism for addressing economic inequalities.  Several years on, it’s still in place, and looks to be a feature of our business landscape for some time, and if you’re planning to start a business in South Africa, it’s worth understanding how BBBEE works, and what you can do to make sure you can compete.

The Scorecard System

BBBEE works on a scorecard system, which is based on seven pillars of empowerment: ownership, management control, employment equity, skills development, preferential procurement, enterprise development, and socio economic development.

Under the new system, ownership and management account for only 30% of the overall empowerment of any firm.  That means that even if your business startup will not be owned or managed by previously disadvantaged individuals, you can still claim points for your other empowerment activities.  For instance, you could choose to hire staff from the designated groups, or you could increase the skills development of existing staff, or buy from BEE companies.

Individual sectors, such as construction, travel and others also have their own industry standards.  For instance, contractors operating in the construction sector can claim points when tendering for ownership or management by women, or by people with disabilities.  It is worth finding out if your industry sector has a specific code of practice regarding BBBEE, and where your company stands in terms of that guide.


Another mechanism that government has brought in to ensure that all business startups have an equal opportunity to find their footing under the BBBEE legislation is an exemption structure.

Any business that has a turnover of R5 million or under per year is exempt from the BBBEE framework, although they might still need to obtain a certificate to prove that they are eligible for this exemption.

Qualifying small enterprises are business startups who have made it through their first few years, and have a turnover of between R5 and R35 million.  These companies will have to have their BBBEE credentials verified by a rating agency, but they can choose four of the seven pillars of BBBEE to be rated on.  That means that you can choose to exclude, for instance, ownership and two other criteria from your scorecard.

Generic enterprises are those with an annual turnover of R35 million or more, and they are not exempted from any of the assessment criteria.  Once your business startup reaches this level, you will need to be reassessed on all seven pillars of BBBEE, in order to determine your score.

What Does This Mean for Your Business Startup?

What all of this means for your business startup is that if you are a small business, with a turnover of less than R5 million per year, you are automatically considered to be contributing to BEE.  That makes you eligible to tender on contracts in the public sector, and to become a vendor to government and parastatals.

Since this is often a lucrative avenue for small businesses, it’s worth considering having your turnover verified, and your company certified.  There are many ratings agencies out there that can do this for you, or you can contact the Department of Trade and Industry directly to find out more.

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