Small and Medium Enterprises (SMEs)

Small and medium enterprises or SMEs are companies whose headcount or turnover falls below certain limits.

In the UK, definitions for small and medium sized companies refer to those having at least two of the following: a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and the average number of employees must be 250 or fewer. This applies to an estimated 1.6 million of Britain’s 4.3 million firms of all types. In the context of the audit exemption regulations, the exemption threshold for small companies applies to incorporated firms with less than £5.6 million sales turnover and a balance sheet total of no more than £2.8m (before 1985 the turnover limit was £1m).

The abbreviation SME occurs commonly in the EU and in international organizations, such as the World Bank, the United Nations and the WTO. The term Small or Medium sized Business or SMB has become more standard in a few other countries.

EU Member States traditionally had their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 500 employees, while, for example, in Belgium it could have been 100. But now the EU has started to standardize the concept. Its current definition categorizes companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium". By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with less than 100 employees, while medium-sized business often refers to those with less than 500 employees. However, the most widely used American definition of micro-business by the number of employees is the same of that of European Union: less than 10 employees.

In most economies, smaller enterprises are much greater in number. In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people. In many sectors, SMEs are also responsible for driving innovation and competition.