What is an SME? A simple guide and SME definition

SMEs – or small and medium-sized enterprises – are at the heart of the UK economy. Small businesses account for 99% of all British businesses and contribute an estimated £2 trillion combined in annual turnover to the UK economy.

But what is an SME and how are SMEs defined?

What does SME stand for?

SME stands for small or medium-sized enterprise. It’s a term used to categorise businesses that are smaller than large corporations, typically based on factors like their number of employees and turnover.

SME definition

The UK definition of SME is generally a small or medium-sized enterprise with fewer than 250 employees and a turnover of less than £36 million (or a balance sheet total of less than £18 million).

Within this umbrella there are three different categories: medium-sized, small, and micro-businesses. These categories are defined by turnover and number of employees.

Companies Act 2006 definition

The Companies Act 2006 definition differs from the UK government. The act categorises SMEs into three classifications:

micro entity – maximum turnover of no more than £632,000, a balance sheet total of no more than £316,000, and fewer than 10 employees.
small company – maximum turnover of £6.5 million, a balance sheet total of no more than £3.26 million, and fewer than 50 employees
medium-sized company – maximum turnover of £25.9 million, a balance sheet total of no more than £12.9 million, and fewer than 250 employees

The reason the Companies Act 2006 definition is important is because the category you’re in defines how you have to file your accounts with Companies House.

What is the EU SME definition?

The UK’s definition of an SME only slightly differs from the EU, but it’s useful to consider the current EU meaning too. According to the EU definition of business sizes:

a medium-sized business has fewer than 250 employees and either a turnover of up to €50 million or a balance sheet total of up to €43 million
a small business has fewer than 50 employees and either a turnover of up to €10 million or a balance sheet total of up to €10 million
a micro-business has fewer than ten employees and either a turnover of up to €2 million or a balance sheet total of up to €2 million

The main difference between the two definitions is that the figures will be different because of the currency conversion rate.

How many SMEs are there in the UK?

There are 5.45 million SMEs in the UK, according to the latest government figures. Some 1.4 million (26 per cent) of those SMEs have employees, while 4.1 million (74 per cent) don’t employ anyone.

Medium-sized enterprises (50 to 249 employees) make up 0.7 per cent of the total business population. And there are only 8,250 businesses that employ 250 or more people, equating to only 0.2 per cent of the businesses in the UK.

What role do SMEs have in the economy?

Millions of people work for SMEs – they’re a key driver of economic growth and sustainability. In fact, SMEs make up 99.2 per cent of all businesses in the UK, so are enormously important to the UK economy.

SMEs are also exposed to the volatility of the economy. When the tax burden is high and consumer spending reduces, small businesses feel the effects.
Our guide to small business grants outlines the support that’s available, but as our research in the The Small Business Manifesto showed, 98 per cent of SME owners feel the previous government hadn’t done enough to support with funding.

Why is it important to know if you’re an SME?

Understanding how your business is categorised is helpful for a variety of things. Like with filing your accounts with Companies House, you’ll need to share the size of business when applying for:

Why is SME insurance so important?

Although it’s hugely rewarding to do what you love and work for yourself, running your own business does come with risks. By insuring your business with the correct cover for your trade, you’ll be better protected when problems unfortunately arise.

Owning your own business doesn’t only require your specific trade or industry knowledge, you also need to develop your business knowledge. Knowing when to invest in things such as insurance is a key part of this.

SME business insurance can cover you in a range of ways. You could damage a client’s property or one of your employees could get injured while working for you. Your trade tools or stock could be stolen, or something could happen to your building premise. Insurance will help you cover the costs associated with these setbacks.

SME examples (small to medium size enterprises)

Here’s a quick list of the type of business you’d expect to be SMEs. Click the link on each to read about the types of SME insurance they might need:

Do you run an SME? Tell us about your experiences in the comments.

Useful guides for business owners

Photo: mavoimages/stock.adobe.com

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What is an SME?