WITH many small businesses still trying to get their tongues, let alone their heads, around the new acronym for the small business codes, the opportunities for qualifying small enterprises, or QSEs, in phase two of the generic codes of good practice, may have been somewhat overlooked by small business owners.

Granted, they need to understand firstly, whether they qualify for measurement under the QSE codes; secondly, how the broad-based elements of these codes will be applied during the measurement process; and, finally, how the flexible solution offered to QSEs is best approached for optimal scoring.

In a nutshell, a qualifying small enterprise is a business with a turnover cap of R15m and no more than 100 employees, but this depends entirely on the sector in which the entity falls. Once a business owner has determined his enterprise falls in this category, he has the option to be measured according to five of the seven elements of broad-based empowerment — bearing in mind that inherent bonus points may be won through enhanced recognition if ownership is selected as one of the five elements or if all seven elements are selected.

This offers smaller businesses a better opportunity to focus on certain elements and precludes them from having to contribute to two areas.

Aside from understanding and preparing to apply the QSE codes, however, QSEs should also recognise the inherent opportunities in certain aspects of the draft second phase of the codes of good practice applying to medium and large businesses, which are to be measured according to the generic scorecard.

As part of government’s overall aim of increasing employment opportunities and growing small businesses, larger entities are now encouraged not only to invest in, assist and mentor fledgling enterprises but also to procure from such enterprises.

Government has identified preferential procurement as the key driver of broad-based empowerment in the private sector due to its multiplier effect, awarding it 20 weighting points on the generic scorecard.

Of these, 15 points measure an entity’s preferential procurement spend in proportion to the supplier’s empowerment status, with a target of 70% of total measured procurement spend. A further four points are allotted to procurement from QSEs, with a target of 15% of total measured procurement — 15% of the above-mentioned 70% must be procurement from empowerment-compliant QSEs.

Businesses are also encouraged to procure from micro enterprises (these will have an automatic deemed empowerment recognition level of 100%) with one weighting point dedicated to procurement from these exempted micro enterprises and an attached target of 5% of total measured procurement (also 5% out of the overall total of 70%).

All in all, this means any entity subject to the generic codes of good practice which does not procure from micro enterprises and/or QSEs can score a maximum of 15 out of 20 for preferential procurement — automatically losing out on a third of the allocated weighting points.

There is also enhanced recognition for procurement from suppliers that are also enterprise development beneficiaries of the measured enterprise.

Naturally, QSEs can also benefit from enterprise development opportunities in and of themselves, although such opportunities are often likely to be most efficient when coupled with procurement opportunities.

Nonetheless, provisions in the codes on how measured entities can contribute to enterprise development do allow for enhanced recognition of enterprise development initiatives that help micro enterprises expand their operational or financial capacity. The development of QSEs is not encouraged through enhanced recognition but QSEs are possibly the most likely of enterprise development candidates, given their size.

There are, therefore, inherent opportunities for QSEs and micro enterprises, but in the case of QSEs, these depend on the entity’s empowerment status. To benefit from enterprise development initiatives, QSEs must achieve above 75% on the QSE scorecard, or above 45% if they are black-owned. But to ensure they are best placed to benefit from the one-third weighting points dedicated to procurement from QSEs, small businesses must score as many points as possible on the QSE scorecard — with proportional recognition applied in preferential procurement, measured enterprises will seek to procure from QSEs with the highest overall score.

Since the QSE codes are part of phase two of the codes of good practice, small businesses can submit comments to the trade and industry department before March 31: bee-cgp@thedti.gov.za

Clow-Wilson is research and special projects manager at empowerment ratings and research agency Empowerdex.