What defines an SME

Small and Medium firms are perceived as vulnerable yet valuable entities, important both economically and socially. High failure rates of SME are largely attributed to weaknesses in financial management and marketing. Many classical management concepts are unsuitable for application in SME context, with research suggesting non-implementation of theoretically based marketing practice is the rule rather than the exception in the small firm.


Defining the small firm is perceived as difficult with no universal consensus as to what constitutes SME firm.

The European Network for SME Research (1994) groupings as follows:

• Micro: Zero to nine employees.

• Small: Ten to ninety nine employees.

• Medium: One hundred to four hundred and ninety nine employees.

• Large; Five hundred or more employees.

Further criteria used to classify a firm as “small” include, in addition to size by number of employees, are

* sales volume,

* asset size,

* type of customer and

* capital requirements and

* sheer organisational size or industry market share.

In practise however these criteria have proved to be somewhat arbitrary, allowing businesses with substantial turnover and/or profit to be classified as “small”. The lack of a clear and agreed definition of what a “small and medium business” actually is mitigates against an accurate assessment of failure within the SME sector, as the suggested rate of SME discontinuance is described as “highly dependent upon the definition of what is or is not an SME”. However, there is general agreement that smallness and newness create specific difficulties for businesses, and that the failure rates of these firms is too high, with the onus resting upon those responsible for formulation of small business policy to develop appropriate programmes to assist small firms in avoiding discontinuance. The discontinuance of small firms is a significant issue given their importance to the U.K. economy as a whole.

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