It pays to be specific – What Really is an SME?

It pays to be specific – What Really is an SME?

Sat around a table of small businesses (SMEs) earlier this evening, we discussed ways to improve our results from networking events.

Overall, the consensus was the same. 

It pays to be specific.

One colleague bravely mustered they worked with small and medium businesses needing help with their IT solutions.

Was that really specific?

The conversation changed to what a small or medium business is.

In opposite corners, the two business coaches in the room offered text-book definitions, but they were even slightly different.

So it appears the term SME is widely misunderstood even amongst small businesses.

Let’s take a look..

Understanding the Definition of SMEs in the UK: An Overview of Business Sizes

Small and medium-sized enterprises (SMEs) play a vital role in the UK’s economy, contributing to job creation, innovation, and economic growth. 

However, defining what constitutes an SME can be complex, as it varies depending on the industry, turnover, and number of employees. 

In this article, we will explore the definition of SMEs in the UK and provide some facts about the distribution of micro, small, medium, and large businesses.

Defining SMEs in the UK

In the UK, SMEs are typically classified based on the number of employees and annual turnover. 

The commonly accepted definition of an SME, as per the Companies Act 2006, distinguishes three categories:

1. Micro Businesses: A micro business is defined as a company that employs fewer than 10 people and has an annual turnover of less than £1.5 million. These businesses often operate on a small scale and tend to have a local or niche focus.
2. Small Businesses: A small business is characterized by employing between 10 and 49 individuals, with an annual turnover ranging from £1.5 million to £10 million. Small businesses encompass a broad range of sectors and play a significant role in driving local economies.
3. Medium-Sized Businesses: A medium-sized business employs between 50 and 249 people, with an annual turnover between £10 million and £50 million. These enterprises often have more established operations and a greater level of scalability.

Distribution of Businesses in the UK

To gain insights into the distribution of businesses in the UK, we refer to data from the Department for Business, Energy and Industrial Strategy (BEIS) and the Office for National Statistics (ONS) as of September 2021.

1. Micro Businesses: Micro businesses dominate the UK’s business landscape. According to the ONS, as of 2021, there were approximately 5.9 million micro businesses in the UK, accounting for 96% of all businesses. These enterprises are a vital source of local employment and contribute significantly to the economy.
2. Small Businesses: The ONS reported around 262,000 small businesses in the UK, making up approximately 4% of the total business population. Small businesses encompass a wide range of industries, from retail and hospitality to professional services and manufacturing.
3. Medium-Sized Businesses: The BEIS estimated that there were approximately 39,000 medium-sized businesses in the UK. While constituting a smaller percentage of the overall business population, medium-sized enterprises tend to have a greater economic impact due to their larger workforce and higher turnover.
4. Large Businesses: Although not considered SMEs, large businesses also play a crucial role in the UK economy. As of 2021, there were around 9,000 large businesses in the country. These enterprises often have a national or international presence, making significant contributions to employment and economic growth.

Can both business coaches really be right?

It’s clear then, most entrepreneurs that start their businesses on a kitchen table or run a small lifestyle business are really Micro Businesses. 

Nonetheless, from small acorns huge oaks can and do grow.

Does it really matter what we call ourselves? Yes and no. 

For most of us, the only time the dictionary definition of our business size is important, is, when we apply for funding, grants or other government support. 

Being specific about our target market however is really important when creating marketing campaigns, asking for referrals at networking events or creating marketing materials.

If you’d like some help to be more specific about your target audience, why not get in touch and let’s have a chat about your business.

Sources:

1. Companies Act 2006: http://www.legislation.gov.uk/ukpga/2006/46/section/382
2. Department for Business, Energy and Industrial Strategy (BEIS): https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy
3. Office for National Statistics (ONS): https://www.ons.gov.uk/