What Are Small and Medium-sized Enterprises (SMEs)?

By Indeed Editorial Team

Updated March 28, 2022

Published April 26, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A SME is an abbreviation for a small to medium-sized enterprise that meets certain restrictions on employee or financial measurements. These businesses exist around the globe, but the requirements to classify as an SME can vary by country and industry. Knowing what an SME is and what requirements you may need to meet can help you better understand their role in the business and f. In this article, we list some of the benefits SMEs can receive, explore how different countries define SMEs and discuss how SMEs impact the economy.

What is a SME?

SMEs refer to businesses with assets, revenue or employees that fall below a certain number. The term "SME" differentiates small and medium-sized businesses from large corporations. Since each country determines what it defines as an SME, there isn't one set global meaning to establish which businesses classify as SMEs. For example, in the United States, an SME may have up to 1,200 employees, while in the European Union, an SME can have a maximum of 250 employees.

Related: 100 Business Abbreviations and Their Definitions

What benefits do SMEs receive?

SMEs may receive benefits that large corporations don't. These benefits can help offset some of the common challenges SMEs face, such as securing financial resources. Some benefits SMEs may receive include:

  • Financial assistance and grants

  • Decreased taxation

  • Access to better loans

  • Educational programs

  • Expansion incentives

  • Specialized audit programs

Related: What Are Business Expenses and How Are They Recorded?

How SMEs work in different countries

Here are a few examples of how different countries define an SME and how they operate:

United States

In the United States, the requirements a SME must meet to receive favorable government contracts and targeted funding may vary by industry and product. These requirements may be determined by revenue or the number of employees a business has. For example, a business that mines copper or ore can have up to 1,500 employees and still classify as an SME, while a manufacturing business that mills rice can only have up to 500 employees.

The Small Business Administration (SBA) creates and maintains a list of SME business size standards and requirements in the United States. The SBA also classifies businesses with less than 10 employees as SOHOs, or small office/home office businesses. These are a subcategory of SMEs.

Related: How To Make a Small Business Organizational Chart

European Union

The European Union defines an SME as a business that employs less than 250 people. The European Union also identifies three subcategories of businesses considered SMEs. These include:

  • Medium-sized businesses: SMEs that employ less than 250 people, have a turnover of less than €50 million and a balance sheet total of less than €43 million.

  • Small businesses: SMEs that employ less than 50 people, have a turnover of less than €10 million and a balance sheet total of less than €10 million.

  • Micro-businesses: SMEs that employ less than 10 people, have a turnover of less than €2 million and a balance sheet total of less than €2 million.

Related: How To Create a Business Analysis Model

Canada

The organization Innovation, Science and Economic Development Canada (ISED) defines SMEs as businesses with less than 500 employees. In addition to meeting these employment requirements, another organization, Statistics Canada, states that SMEs cannot have more than $50 million in gross revenues. There are also several smaller categories of SMEs that businesses may fall into.

  • Small product-based businesses: If a business produces products, they must have less than 100 employees to qualify as a small business.

  • Small service-based businesses: If a business provides a service, they must have less than 49 employees to qualify as a small business.

  • Micro-businesses: A business that has less than five employees can qualify as a micro-business.

Related: 14 Bookkeeping Basics for Small Business Owners

China

The SME Promotion Law of China determines the guidelines and requirements SMEs must follow in China to receive government incentives. The requirements businesses must meet depend on the number of employees, annual revenue and total assets. Similar to the United States, the requirements an SME must meet also vary by industry category. For example, the limit for the number of employees an SME can have ranges from as little as 200 to as many as 1,000.

Related: How To Become a Small Business Owner in 10 Steps

Australia

The Australian Taxation Office (ATO) defines a SME as a business with an aggregated turnover of less than $10 million. In addition to this, the Australian Bureau of Statistics (ABS) breaks SMEs into several smaller categories based on the number of employees:

  • Medium business: An SME that employs between 20 and 199 people

  • Small business: An SME that employs between five and 19 people

  • Micro-business: An SME that employs between zero and four people

How do SMEs impact the economy?

SMEs have a significant impact on the economy and make up the vast majority of businesses in most countries. Some of the ways SMEs contribute to global, national and local economies include:

  • Creating job opportunities: SMEs contribute to local economies by providing more employment opportunities, especially in remote areas where large corporations may not have as much prevalence.

  • Driving innovation: SMEs tend to be more entrepreneurial than large corporations and often attract employees with the ability to invent new products and solutions.

  • Adapting to changing markets: SMEs have the flexibility to adapt quickly to the changing requirements of the market. This allows them to meet the needs of consumers more efficiently.

  • Assisting large corporations: Often, SMEs assist large corporations by providing specialty services, raw materials or specific operations that they're better equipped to supply. For example, a large corporation that produces furniture may partner with an SME that can provide them with raw materials like wood and pulp.

  • Fostering competition: SMEs stimulate the economy by creating competition around the design of products, prices and efficiencies. This prevents large corporations from gaining too much control or forming a monopoly in one of these areas.

  • Contributing to local government: The more revenue a SME accrues, the higher taxes they must pay. Therefore, when consumers purchase products or services from local SMEs, they keep money within their community which they can use to fund police departments, fire departments and public schools.

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