SMEs better at keeping score

Meeting the requirements of black economic empowerment (BEE) is part of everyday life for companies in South Africa and small
and medium enterprises (SMEs) are no exception.

“It’s becoming less and less of an issue,” says Arthur Goldstuck, managing director of World Wide Worx and the co-owner of SME Survey, which provides research and marketing for SMEs on an annual basis. Goldstuck says the use of a “balanced scorecard” to assess SMEs’ BEE compl iance has al lowed these companies to “participate actively in the economy” without being concerned with stringent BEE requirements.

“From the moment [the scorecard] was brought into the mix, BEE was a lot less of an issue. At the same time, there’s been a steady growth in the proportion of SMEs with a BEE component.”

Goldstuck says the thinking behind the implementation of the balanced scorecard for SMEs was that really small businesses couldn’t meet BEE requirements without threatening their survival. Because the scorecard covers a range of BEE elements, not just ownership, it is a better way to judge the transformative status of a business than purely looking at equity.

“In the case of some companies, that’s all they look at. But the scorecard contains seven elements companies have to comply with and equity is only one of them. It forces companies to be sustainable.” Goldstuck believes the balanced scorecard is a positive thing for SMEs.

“It fosters a healthier business environment and businesses become more responsible citizens of the economy. Corporate social investment and employee development becomes as important to businesses as the proportion of their employees who are previously disadvantaged. Businesses benefit by being more responsible.”

But, a business’s classification as “small” or “medium” has an impact on its BEE requirements and making the transition from one to the other puts a lot of pressure on SMEs, says Gerrie van Biljon, the executive director of business at Business Partners Limited, a specialist SME risk finance company. “In the case of the smaller SMEs BEE requirements are not really an issue and so the effect is substantially less. But the minute you go over a certain level of income, the rules change.

“The transition from a small to a medium business is difficult for many business owners. They almost don’t want to move because it complicates their lives; they don’t have the necessary experience to deal with it. They almost have to employ someone fulltime to stay on top of the BEE stuff. “They don’t see it as a positive measure to ensure compliance.”

Van Biljon agrees that the balanced scorecard has made it easier for SMEs to be BEE compliant. But he warns of problems with the accreditation process. “SMEs can mark their own BEE scorecard, but this isn’t really taken seriously. So they use accredited firms to do the audit and give them their certification but, of course, this costs money. And SMEs don’t need additional costs. So, while SMEs may buy into the BEE concept, the execution is costly.”

Some small businesses don’t find BEE compliance problematic. Samantha Sharkey is a managing member of Singayenza, an economicdevelopment agency that provides skills training and mentorship for emerging SMEs in the Breede River Valley area in the Western Cape. “All of our businesses are 100% black-owned, so we really don’t struggle with BEE. But it has helped a lot in securing contracts from government and the private sector.

“There is a huge education deficit in the area. People mostly have just primary school—and a poor primary school education at that. So it’s difficult for them to start their own businesses and know what to do to keep them running.” The Micro-MBA programme, which Sharkey facilitates, teaches new business owners everything they need to know to run their own businesses, from bookkeeping to stock control, in a simple, easy-to-understand way.

Although the businesses Sharkey works with are still fairly new and small and haven’t had a major impact on the economy in the region, she says their significance in terms of empowering individuals and their families is “huge”.

“SMEs are hugely important to the economy. One has to create jobs and entrepreneurship is the way to do it. That’s where SMEs come in. But one has to go about it the right way, starting at the grassroots, where people grow with their businesses. It’s a slow process. You have to start small and progress from there.”

The spokesperson for the department of trade and industry, Sidwell Medupe, says SMEs are vital to the economy. “Anecdotal studies in South Africa have demonstrated that SMEs play an integral role in economic growth and employment creation. This is critical for the future of every economy.” And, despite of the obstacles, transformation in SMEs is “definitely” taking place.

“We’ve seen transformation happening, especially in cases in which they deal with large companies, government firms and parastatals,” says Van Biljon. And, he says, the transformation is genuine, not just a black name on the letterhead to get BEE points.

“On the ownership side in the past two years we’ve seen SMEs bring in competent people who can contribute to the wellbeing of the company, instead of doing it in the manner it used to be done: mere windowdressing.

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