Friday, July 23, 2010

Definition of SME: Bet you didn't know what it means

Maybe it's just me. I get a little frustrated by constant references to SMEs as if this were somehow shorthand for small businesses. Indeed, SME is commonly used to reference the smallest of businesses. (And don't get me started on those people who say they specialise in helping SMEs).

Few people, other than some accountants, seem to be aware that 99.9%* of ALL UK businesses fit the official definition of a Small or Medium sized Entity (SME). This is clear from the statistics for SMEs published by the Department for Business Innovation and Skills* (previously the DTI and BERR). These reference a total of almost 4.8 million UK businesses.

The EU definitions for distinguishing businesses of different sizes, and which are used for many official purposes in the UK are effectively:

= upto 50 employees and upto £6.5m turnover.
Medium sized = upto 250 employees and upto £25.9m turnover.

I'm sure very few people realise that businesses with multi-million pound turnovers fall within the official definition of SMEs.

The term 'micro' business also derives from EU definitions but is less common in UK official statistics etc. The EU definition of micro entities covers those with fewer than ten employees and both turnover and balance sheet totals of less than 2m euros.

I suspect that when most people reference SMEs they are really thinking about micro businesses. Some people may also assume that the smaller 'small' companies are also included.

The previous Government often made reference to tax reliefs and exemptions intended to help SMEs. Perhaps the coalition Government will do the same thing. When the smallest (micro) businesses really can benefit that's fine. In the past however frequently the real beneficiaries were only the 27,000 'medium' sized companies rather than the 4.6 million micro entities. These figures come from the most recently published statistics* which also suggest that there are only around 170,000 'small' (rather than micro) and 6,000 'big' companies in the UK.

Perhaps we need a new term, phrase or abbreviation that better describes such businesses. My contribution would be to talk about MiBiz - and we could then refer to the MiBiz community.

* The latest stats from the BIS relate to 2008 and were published on 14 October 2009. They can be accessed through this link.

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