WHAT IS AN SME? A SIMPLE GUIDE AND DEFINITION

21st June 2022 | 3 min read

LABS-6203-Edit_01-WHAT IS AN SME? A SIMPLE GUIDE AND DEFINITION

Firstly, let’s get the basics covered. What is the meaning of SME? Those three letters stand for Small and Medium sized Enterprises.

To be considered an SME a business must have fewer than 250 employees and either an annual turnover that doesn’t exceed £40 million or an annual balance sheet total not exceeding £34 million. If the number of zeros in those figures surprise you, that’s because the definition of an SME is bigger than you might think.

What is an SME in business then? Well, in general terms, it is a company that maintains revenues, assets, location and organisational structure. SMEs can be further subdivided into what are called micro businesses, which have 0-9 employees and a turnover of £1.6 million, small businesses comprising 10-49 employees and £8 million turnover and medium-sized firms that are characterised by having between 50 to 249 staff and an upper threshold of £40 million.

SMEs are not limited to a particular type of business, so cover both manufacturing and service industries from transport, hotels and restaurants to agriculture and mining. However, professional, scientific, and technical activities make up 15% of all SMEs. In the London Stock Exchange’s publication 1000 Companies To Inspire Britain, it reports that 173 SMEs are involved in engineering and construction, 58 are technology firms with another 50 made up of financial services.

Accounting for 99.9% of businesses in the UK, according to statistics from the UK government, and for three fifths of employment, as well as around half of the UK’s private sector turnover, according to the National Federation of Self Employed and Small Businesses (FSB), it’s no wonder that the government regularly offers incentives, including tax breaks (for example R&D tax credits) and access to loans to keep SMEs in business given their important to the economy.

It could be argued that SMEs are actually the powerhouse of the UK and likely other countries, keeping economies afloat, responsible for employing great swathes of the population and helping to drive innovation.

Crucially SMEs have the freedom to be creative, are able to nimbly react to changes in demand or new market opportunities, although they do have to balance that against any possible risks.

But getting the basics right when it comes to running a successful SME is key. These basics include balancing the amount of money coming in and going out and of course finding and keeping the right people. Employing the right staff with the appropriate skillsets can mean the difference between an SME functioning properly and it failing.

The right personalities need to integrate well and finding the most appropriate office for all can play a key part of that: providing workspace for the introverts, the extroverts and everyone in between. This is why at LABS we focus on providing the best workplace environments possible, creating sophisticated and comfortable communal spaces, meeting rooms and private offices. Being close to clients is also crucial for SMEs in terms of that all-important face-to-face contact.  Just like finding a home, doing your research and thinking hard about the requirements you need from your place of work can pay dividends!