SME is an abbreviation often used in the business world, but what does it actually mean? And 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 hard to imagine how a manufacturing business, for example, with 250 staff and a £40 million turnover can be considered a small-sized company!
It’s therefore useful to understand what constitutes a SME and how different organisations define it, particularly if you apply for small business funding.
The EU’s own definition of an SME, which is considered the standard definition, has three categories:
Microenterprise – under ten staff, turnover of less than €2 million or a balance sheet of less than €2 million
Small enterprise – under 50 staff, turnover of under €10 million or a balance sheet of less than €10 million
Medium enterprise – under 250 staff and a turnover of €50 million or a balance sheet of less than €43 million
The UK government defines SMEs like the EU, but in America, a business is still an SME if it has less than 500 employees. The Bank of England views it differently, again, with an SME being a business which has an annual turnover of less than £25 million. The British Bankers Association (BBA) goes further defining a small company as one with a turnover of up to £2 million.
Number of SMEs in the UK
Collectively, SMEs are the powerhouse of the UK economy with more than 99% of British business fitting the description. Of that figure, 96% fulfil the definition of a microbusiness, employing under ten people.
In 2021 there were an estimated 5.5 million SMEs with under 50 employees, accounting for 99.2% of total business.
Collectively SMEs employed 16.3 million people and were estimated to have turned over £2.3 trillion.
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 the UK.
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 40% after five years.
While it’s tough running a small or medium-sized business, and Brexit hasn’t helped, it’s also extremely rewarding. With the right software to support you, you can be one of the ones who thrive.
Frequently asked questions
What does SME stand for?
SME stands for small to medium-sized enterprise and applies to businesses up to a certain size.
What’s the definition of an SME company?
To fit the description of an SME you need to come under certain thresholds. Microbusinesses have fewer than ten employees and a turnover under €2 million, small businesses have under 50 staff and a turnover under €10 million and medium businesses have under 250 staff and a turnover under €50 million.
What is considered an SME?
Any business which comes under the thresholds set by the EU and the government.