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What is an SME? Here’s an SME definition

4-minute read

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Catriona Smith

Catriona Smith

15 June 2023

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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?

SME definition – what does SME stand for?

The UK definition of SME is generally a small or medium-sized enterprise with fewer than 500 employees. While the medium or small business definition in the EU is a 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?

On 3 October 2022, the criteria for what defines an SME changed. After a change in legislation to ‘reduce red tape’ for SMEs, you’re considered a small business if you have fewer than 500 employees.

The UK’s definition of an SME differs from the EU, so 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 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

What support can SMEs get for the cost of living crisis?

Finding the support your business is entitled to can be challenging. Our guide to small business grants breaks down the process.

We explain all the different forms of funding available, how to know if you’re eligible, and alternate options if you don’t meet the criteria.

And with energy bills soaring for businesses, it’s important to get the support you’re entitled to.

Our guides to the Energy Bill Discount Scheme and what it means for small businesses provide information around how the scheme works, how much bills will be discounted, and how to reduce your energy bill. Find more cost of living support information here.

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 can help you recognise potential strengths and obstacles before you start. Keeping up to date with business trends and SME news will also help you better plan for the future.

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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 how to write an invoice, 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.

You’ll need to understand tax deadlines and responsibilities, organise business insurance, and in some circumtstances 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.

Why is SME insurance so important?

Although its 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:

Useful guides for business owners

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

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Photo: 88studio/stock.adobe.com
Catriona Smith

Written by

Catriona Smith

Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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