What is an SME? Here’s an SME definition

SMEs – or small and medium-sized enterprises – are the heart of the UK economy and make up 99.9 per cent of the nation’s business population. But what is an SME and how are SMEs defined?

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SME definition – what does SME stand for?

The UK definition of SME is generally a small or medium-sized enterprise with fewer than 250 employees. While the SME meaning defined by the EU is also business with fewer than 250 employees, and a turnover of less than €50 million, or a balance sheet total of less than €43 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.

How many SMEs are there in the UK?

Millions of people work in SMEs – they’re a key driver of economic growth and sustainability.

In fact, SMEs make up around 99.9 per cent of all businesses in the UK, so are enormously important to the UK economy. And 96 per cent of the UK’s businesses have fewer than 10 employees

What is the EU SME definition, or SME criteria?

It’s useful to consider the current EU SME meaning too. This definition uses the measure of headcount explained above – SME is a business with fewer than 250 employees. It also makes definitions of the three categories of business within the SME umbrella. According to the EU definition:

• 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

Why do SMEs fail?

Starting out as an entrepreneur is not without its challenges, and there are many reasons why a new business might not be successful. For example:

Running out of money

A big risk for any business is failing to balance the money coming in and the money going out. By keeping a budget and managing cash flow you can better understand the health of your business, and take steps to manage any problems early on.

Lack of experience

While you’ll likely be very good at making and selling your products, or delivering a fantastic service, as a business owner you also need to be good at everything from management and marketing to HR and finance. If you want to brush up on your skills, City & Guilds offer a range of vocational courses.

Poor planning

It’s important you know the direction you want your business to go, and how you’re going to get there. That’s why having a detailed business plan and doing a SWOT analysis to help you recognise potential strengths and obstacles before you start.

What support can SMEs get during the Covid-19 pandemic?

Whether your business needs urgent support due to the coronavirus outbreak or you’re looking for general information, read up on the help available in our coronavirus support guide for a full list of resources and tips on how to apply.

How do I start an SME?

If you’re looking to start your own business, there’s support available online and through groups like the British Chambers of Commerce. Simply Business also offers tips and how-tos at our Knowledge centre.

From a guide on Self Assessment tax returns to social distancing guidance for drivers and couriers, there are plenty of articles to help you start and run your business.

If you’re just starting out, you’ll need to sort these as a priority:

1. Work out what you’re offering

What is it that makes your new business unique? Work out what you’re offering and what separates you from your competitors, whether that’s a unique product or service, competitive pricing, ‘value adds’, or any other unique selling points.

2. Do your research

Research is important in the early stages of a business. You’ll need to think about what your competitors are doing and analyse their strengths and weaknesses. You’ll also need to think about how to find the right suppliers, how to deliver your products or services, and crucially, how to market yourself to new customers.

3. Build a business plan

A business plan is the foundation for a new business. It’s a crucial document, one that grows and changes along with your new venture. Read our comprehensive guide on how to write a business plan.

4. Get the legal side sorted

You’ll need to choose a legal structure for your business, understand tax deadlines and responsibilities, organise business insurance, and in some circumstances apply for a business licence.

5. Find customers

Your business plan should include details of the marketing activities you’ll conduct to get yourself in front of new customers.

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 insurance they might need:

• self-employed workers
• contractors
• online retailers
• consultants
• freelancers
• sole traders
• cleaners
• hairdressers
• caterers
• photographers
• shops
• dog walkers and pet sitters
• tradespeople

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