BEE Partner, South Africa Economy Watch

The question of where to find a suitable BEE party is directly linked to what is expected from such a BEE party.

The most sought after BEE party is without doubt, someone who has such powerful connections that he can provide the SME owner with any number of new sales contracts at profit margins, which are usually only dreamt of.

Maybe such a party does exist somewhere, but if so, this party will be in such great demand that it will not have time to breathe!

What every SME owner really wants, is a wizard with a magic wand in the form of a BEE party, who can turn his business into a money-making machine, without requiring any risk to or effort from him.

Most SME owners would tell you that they would gladly accommodate such a wizard as a BEE partner, as the financial gain will far outweigh any downside which could possibly accompany a BEE partnership.

On realising that such a BEE wizard does not exist, a large number of SME owners then decide to rather sell their business in its entirety, or operate it as is, until the lack of BEE credentials causes such a great loss that they will have to close it down.

SME owners, who regard BEE as an opportunity to improve their businesses, need to analyse their business in order to establish the area or areas where there could be possible skills shortages.

These skills shortages could then be eliminated or reduced through the introduction of BEE parties to these areas. Such BEE parties could then be accommodated as business partners in the SME thereby complying with BEE requirements relating to equity holding as well as management.

For example, should an SME not have a suitably capable financial manager, it could recruit a BEE party in the form of a suitably qualified accountant, who is then accommodated in the business not only as the financial manager and/or director, but as a shareholder as well.

In other words the incoming BEE party must be able to add value to the business. If there is no possibility of added value by the BEE party, then such BEE party should not be accommodated into the business.

BEE structures where a BEE party is allocated a shareholding in a SME business, and the BEE party

Does not play an active role in the business should not be entertained by the SME entrepreneur looking to achieve BEE status for his business.

Government-backed BEE funders have a requirement that they only fund BEE parties who are actively involved in a business, actively adding value.

The choice of BEE party is therefore also a factor of the funding mechanism of a BEE transaction.

Should an SME owner then look for a BEE party, whose name could appear on business stationery only, as he wants no involvement by such BEE in his business, he could not make use of government-based funding for such a transaction.

There is a large number of SME businesses, which have done exactly what is described above. This practice does not fat! within the ambit of Broad Based Black Economic Empowerment and SME owners entertaining such structures could in future find themselves not adhering to the Broad Based Black Economic Empowerment Act.

In some ways many SME owners begrudge the policies surrounding BEE as they are under the wrong impression that BEE is a handout to the Historically Disadvantaged Individuals.

Many believe that BEE parties are given funds in the form of grants to invest into business and that these parties do not have to repay such funds to the providers.

Nothing can be further from the truth.

However, this false impression leads to a negative attitude on the part of the SME owner towards BEE. It has a profound impact on the choice of a BEE party when the SME owner then decides to structure a BEE transaction.

BEE rests firmly on economic merit. It is no handout, not to the BEE party, nor to the enterprise accommodating the BEE party.

The SME owner therefore needs to understand that in order to attract a high calibre BEE party; he needs to have a high quality business.

BEE parties who possess the skill, contacts and business acumen can normally add huge value to most businesses and are therefore in great demand, just like anybody with such credentials can add huge value to a business.

These BEE parties choose their involvement in SME businesses from the top down.

The best structured businesses reflecting the highest level of profit with the fewest skeletons in their cupboards are usually selected first.

In other words a business should not become successful as a result of the introduction of a BEE party. It must already be successful at the time of introducing such a BEE party.

The extent to which an SME owner will offer equity to a BEE party in a business is also driven by the requirements set by the customer base of such business.

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