Why abandoning B-BBEE in the middle of COVID is a bad idea

A Broad Based Black Economic Empowerment (B-BBEE) rating is much like having a key to the city. Implementing, monitoring and maintaining a decent B-BBEE scorecard helps to unlock doors to business, making it as important as finances, profits and the bottom line. With the scorecard based on the financial period, which culminates at the end of February for the bulk of companies, it’s crunch time for those that want to keep their key.

But the COVID-19 pandemic has ravaged businesses. In an online survey conducted by IPSOS South Africa in September 2020, 55% of SMME business owners said they experienced greater uncertainty around the sustainability of their businesses, with 63% of SMME’s stating that they are performing “Not Well” or “Not Very Well”.1 More than half (55%) said that customers are spending less than before, with micro businesses Being the hardest hit (61%). 32% of micro businesses reported that orders were cancelled.1

Financial performance is down. Morale is down. Business leaders are focusing on survival and B-BBEE initiatives may have fallen by the wayside. And, keeping a good scorecard might seem like an unattainable goal at this stage.

“A lot of companies are flailing and might be thinking of abandoning B-BBEE because they believe it to be too costly when the priority right now is to stay liquid. But, abandoning B-BBEE could alienate them from opportunities that will cost them more in the long run.

“B-BBEE is a priority for corporate South Africa. A valid B-BBEE Certificate allows companies to do business with government and corporates, which in turn want to be compliant with BEE in their supply chain. What this means is that business and contracts are awarded to suppliers that support the organisation’s own B-BBEE objectives. It has been predicted that B-BBEE will, over the course of the next year, focus on bolstering the codes that ask large corporates to protect the SMEs in their supply chains. This protection could include measures to assist small businesses with cash flow, such as early invoice payment, overhead support, training and up-skilling.

“Keeping that scorecard up is part of keeping ongoing relationships, and not getting scrapped from vendors lists. If you get scrapped, it can be difficult to get back on. If you skip it and do not make sure you have an acceptable level when your current B-BBEE certificate expires later this year, it might push you further into the doldrums,” says Deon Oberholzer, CEO at Gestalt Growth Strategies.

He reminds business owners that if they have had a challenging year, their targets will be proportionately lower and therefore costs will be lower.  The cost of B-BBEE is directly related to your payroll and net profit after tax.  If they go down, the targets go down.

 “You must understand your targets, your payroll, your procurement and your profits, and have a plan in place to optimise the elements that will get you the best scores in the most cost efficient way.”

“Your B-BBEE Strategy and implementation can be managed to benefit your business, staff and value chain. So, don’t think of it as another tax or strain on your business. On the contrary, it could be the way to navigate your business to the next level.”

The four elements to focus on for the looming year end are skills development, supplier development, enterprise development and socio-economic development. Each one has indicators against which points are measured.

“Things like ownership and employment equity can come later,” says Oberholzer.

He stresses that it is not too late for businesses that must comply with BEE to sort-out their compliance before the financial year end and keep grasp on their scorecards.

“You can still reach your target and get a decent or even a strategically competitive BEE Level. Just get it done. Now is not the time to abandon B-BBEE,” concludes Oberholzer.

Listen to Interview on Smile FM’s The Honest Truth

Deon discusses the risk of businesses abandoning BEE during the COVID pandemic with Benito Vergotine on Smile FM’s The Honest Truth.

Listen to Interview on Paarl FM Brekvis

Listen as Deon elaborates on the risk of businesses abandoning BEE during the COVID pandemic with Lynden Jafta on Paarl FM Brekvis