What is an SME Business?
Categorising a business is typically done via the industry or business type. However, the size of a business cannot be overlooked when we talk about competition and business finance. A small business provokes a thought of a solo tradesman working in a local area to provide services. However, this is not the case, and the numbers involved in some “small businesses” are a lot more substantial than you think.
The UK definition of SME is generally a small or medium-sized enterprise with fewer than 250 employees. In comparison, the SME defined by the EU is also a business with fewer than 250 employees, a turnover of less than £41 million, or a balance sheet total of less than £35 million.
Within this umbrella, there are three different categories: medium-sized, small, and micro-businesses. These categories are defined by turnover and the number of employees:
Micro – < 10
Small – < 50
Medium – < 250
While headcount may be one of the first things that spring to mind when talking about the size of a business, the next would be turnover.
Micro – £ 1.7 Million
Small – £ 8.2 Million
Medium – £ 41 Million
These turnover amounts may surprise you. What category does your business fit into?
Depending upon where you are located, the criteria listed above may be up for debate.
Small and Medium Enterprises play a major role in most economies, particularly in developing countries. SMEs account for the overwhelming majority of businesses worldwide and are hugely important contributors to job creation and global economic development. They represent almost 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income in emerging economies. These numbers are significantly higher when informal SMEs are included. According to estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, making SME development a high priority for many governments worldwide.
Why Do SME businesses Fail?
Now that we have discussed what an SME is and how significant the contribution of all SMEs is worldwide, we need to talk about the difficulty of running an SME. SMEs are less likely to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises. Running out of money is a small business’s most significant risk. Owners often know what funds are needed daily but are unclear as to how much revenue is being generated, and the disconnect can be disastrous.
Inexperience managing a business or an unwillingness to delegate can negatively impact small businesses. Also, a poorly visualised business plan, which can lead to ongoing problems once the firm is operational, can be a huge downfall for new small businesses. Having an experienced senior management team that is pulling in the same direction is very much essential.
Poorly planned or executed marketing campaigns, or a lack of adequate marketing and publicity, are among the other issues that drag down small businesses. The product or service could be game-changing. However, with the nature of cash flow, if it takes too long for the masses to see the value within the service, the business may struggle to stay afloat for very long!
How To Start An SME Business
We could easily write a full blog on this topic, but we will keep this section brief as there is so much detail in each step of building a business plan. Firstly, you need an idea of a product or service that you are going to offer, scalable and profitable. Next, you need to make sure there is demand, funds available and a lot more:
- Market research will tell you if there’s an opportunity to turn your idea into a successful business
- Write your business plan
- Fund your business
- Pick your business location
- Choose a business structure
- Choose your business name
- Register your business
- Build an online presence
These are very much the starting pointers of getting started. However, what is clear to see is that anyone can give it a go, regardless of qualifications or experience. If you have a killer idea and are willing to work hard, you could make it work!
Taking Your SME Business to The Next Level
You may already be involved in an SME striving forward and looking to move to the next level. As a small business owner, some of what you do will be routine; various daily tasks will need to be accomplished to keep your business running smoothly.
The more effective you are when it comes to completing the day-to-day business management tasks (the ones that you don’t delegate, that is), the more potential your small business has for more tremendous success. You can boost your productivity by developing systems to streamline these processes.
Do not be afraid to delegate to your staff, this will help you focus on what matters.
Other useful links from our knowledge centre:
Running a Business from Home
Why Do Businesses Need Finance?
Who Pays Business Rates?
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