What is an SME?
SME is an abbreviation often used in the business world, but what does it actually mean? Does it apply to your business? Broadly speaking, the definition of an SME is a business which operates under a certain threshold in terms of revenue and number of employees.
The SME abbreviation stands for small to medium-sized enterprise. It’s a broad definition, meaning different things to different people, covering everything from a home-based microbusiness to a medium-sized company with a multimillion-pound turnover.
Detailed definition of an SME
If you run a small business with a handful of staff, it’s useful to understand what constitutes a SME and how different organisations define it, particularly if you apply for small business funding.
The Australian Bureau of Statistics’ definition of an SME, which is considered the standard definition, has three categories:
- Micro enterprise – 0–4 staff
- Small enterprise – 5–19 staff
- Medium enterprise – 20–199 staff
Number of SMEs in Australia
Collectively, SMEs are the powerhouse of the Australian economy with more than 99% of business fitting the description. Of that figure, 89% fulfil the definition of a micro business, employing under five people.
In 2022, there were an estimated 2.5 million SMEs with under 20 employees, accounting for 97.5% of total business.
Collectively SMEs employed 7.86 million people.
SMEs are diverse both in terms of the products and services they sell and in the workforce that makes them up. A hairdressing salon with just five employees is considered an SME just as much as a medium-sized technology business with 200 staff members spread around Australia.
Success rates of SMEs
Around 20% of SMEs fold in their first year, but don’t let that put you off, because four out of five are still going strong; this rate then drops to around 49% after five years.
While it’s tough running a small or medium-sized business, it’s also extremely rewarding. With the right software to support you, you can be one of the ones who thrive.