What is an SME?

17 May 2021
3 minute read

What do your local hair salon, restaurant, florist, undertaker and bakery have in common? They’re likely to be some kind of SME.

What does SME stand for?

The definition of SME varies around the world. In the UK, SME stands for a small to medium-sized enterprise with fewer than 250 employees. The EU also defines an SME as having fewer than 250 employees, as well as a turnover that's less than €50 million, or a balance sheet of under €43 million.

The meaning of SME sometimes varies from sector to sector. For example, the mining industry considers some mines to be SMEs with 250 or fewer employees, while others can have as many as 1,500 employees.

Why are SMEs important?

They may be small, but SMEs tend to play an outsize role in a healthy economy. Not only are they entrepreneurial and innovative but the number of them is usually greater than larger businesses. Out of 5.9 million businesses in the UK over 99% of them are SMEs. Driving forward innovation and growth across the country, SMEs have certainly earned their reputation as ‘the backbone of our economy.’

What are the varieties of SMEs?

SME is an umbrella term. It includes within it: medium-sized, small and micro-businesses.

What are medium-sized businesses?

A medium sized business has:

  • 50-250 employees
  • An annual turnover of less than £25.9 million (or over €10 million but below €50 million in the EU)
  • A balance sheet total of no more than £12.9 million

What is a small business?

A small business has:

  • No more than 50 employees
  • A turnover of no less than £6.5 million
  • A balance sheet total of no more than £3.26 million

What is a micro business?

A micro business has:

  • Ten or fewer employees
  • A turnover of less than £632,000 (or under €2 million in the EU)
  • A balance sheet of no more than £316,000

There are around 5.7 million micro businesses in the UK, making up around 96% of businesses. Micro businesses often operate out of somebody’s home rather than an office, factory or workspace. If you run a business from home, you might need insurance cover to protect assets such as computers, tools or equipment.

Even if your home insurance covers the physical parts of your business, you may still need dedicated business insurance to cover professional indemnity if you provide advice, legal costs in case of an accident at your workplace, or data security breaches.

Examples of SMEs

Here are some of the businesses and business owners you might expect to be SMEs:

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

Whether your business needs urgent support during the coronavirus outbreak or support recovering from it, you may be able to get dedicated support.

There are a number of small business loans and grants you can apply for if you run an eligible small business. Use Support For Business’ grant finder, the government’s Finance and support for your business search function, or the Local Enterprise Partnerships (LEP) Network website.

And if you’re starting up a new business, you could apply for a range of small business grants including Research and Development tax relief and innovation funding from Innovate UK.

What does the future hold for SMEs?

SMEs, and micro businesses in particular, can be vulnerable to shocks. With a small team, few resources and cash buffers, it’s no surprise that the Covid-19 pandemic has hit many SMEs particularly hard.

But it’s not all bad news. Some of the most flexible, innovative and adaptable organisations are SMEs. Many SMEs have risen to the challenge, and will come out of the pandemic more resilient than ever.

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