What is an SME? The definition and meaning of SME in business

‘SME’ is a common acronym in the business world, referring to a specific type of small to medium-sized company. But despite their importance to the global economy, it’s easy to misunderstand the SME meaning in business.

Read on to explore our selection of frequently asked SME questions.


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What is an SME?

An SME is a small to medium-sized enterprise. These companies account for the vast majority (99.9%) of the UK’s total businesses [1], spanning everything from building firms to independent shops and caterers.

Under the Government’s official SME definition, these companies should have a turnover lower than €50 million, or a balance sheet total below €43 million [2]. They must also have fewer than 250 employees [3].

There are different levels of SME, however. Alongside the typical medium-sized definition above, there’s an additional two classifications:

  • Small SME: Fewer than 50 employees and a turnover lower than €10 million
  • Micro SME: Fewer than 10 employees and a turnover lower than €2 million


How does the EU classify SMEs?

Across the European Union (EU), SMEs make up 99% of all businesses, according to official data [4]. The EU classification of SMEs is much the same as the UK: to be an SME in the EU, you must have fewer than 250 employees, a turnover less than €50 million, or a balance sheet total below €43 million.

The Classification of Small and Micro SMEs is also the same as the UK:

  • Small SME: Fewer than 50 employees and a turnover lower than €10 million
  • Micro SME: Fewer than 10 employees and a turnover lower than €2 million


What is an example of an SME?

Construction firms offer a good example of an SME. According to the Federation of Small Businesses, some 16% of all SMEs operated within this industry during 2021 [5]. However, given they make up more than 99% of the business population, you’ll find SMEs across most industries.

Other examples of SMEs can include shops and retailers, food and drink businesses and accountants.


How many UK SMEs are there?

There were just over 5.5 million (5,501,260) SMEs in the UK at the start of 2022, according to official data [1]. Small businesses, with up to 49 employees, made up around 5.47 million of these. Overall employment among SMEs stood at 16.4 million people. Meanwhile, their combined estimated turnover was £2.1 trillion.


Which industry has the most SMEs?

The construction industry currently has the most SMEs in the UK. Just over 914,000 construction SMEs were recorded during 2022 [6]. The professional, scientific and technical activities sector followed, with around 762,000. The wholesale and retail trade also ranked strongly, with roughly 547,000 firms recorded.

Production activities (such as mining) scored the lowest, with just 32,000 SMEs in operation last year.


Is a small business considered an SME?

Yes, a small business is considered an SME. It’s one of the three categories included in the Government’s official SME definition. Under this definition, a small business is classified as having fewer than 50 staff, plus a maximum turnover or balance sheet total of €10 million. The other two SME categories are micro and medium-sized businesses.


What is the UK Government’s SME Action Plan?

The SME Action Plan is a cross-departmental attempt to ensure small and medium-sized businesses play a meaningful role in government work. The plan aims to make sure SMEs are well represented when it comes to public procurement spending.

The likes of the Crown Commercial Service, HM Revenue & Customs, and the Foreign, Commonwealth & Development Office have published SME Action Plans (external link) so far.

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Our FAQ pages provide general information and background around the topic covered. FAQ pages are reviewed and monitored periodically by our insurance experts. But the content is not intended to be read as advice and any material is for general information purposes only. If you would like advice for any content, please seek professional assistance.