If you’re starting a business, it’s likely your new venture will be classed as an SME. This stands for small or medium-sized enterprise, and essentially, it’s a business that’s not a large corporation.
This applies to all businesses, whether they are limited companies, partnerships, sole traders, or other business structures. If your business is an SME, you have access to specific government support, funding, and advice.
This guide will explain what an SME is, how it’s officially defined, why SMEs are so important, and how to start one yourself in just five simple steps.
Key Takeaways
- An SME is any business with fewer than 250 employees and under £44 million in turnover.
- 99% of UK businesses are SMEs, including sole traders, partnerships, and limited companies.
- SMEs benefit from targeted government support, including funding schemes, tax incentives, and startup grants designed to help them grow.
The UK and EU official definition of an SME
According to GOV.UK, to qualify as an SME, a business must have both:
- Fewer than 250 staff
- Less than or equal to £44m in annual turnover or a balance sheet total of less than or equal to £38m
The EU also has a standard definition that is widely used in UK government guidance and business support schemes.
It states that SMEs can be split into three categories – micro, small and medium. Here’s how they break down:
Micro business
- Fewer than 10 employees
- Annual turnover or balance sheet total of €2 million or less
Small business
- Fewer than 50 employees
- Turnover or balance sheet total of €10 million or less
Medium business
- Fewer than 250 employees
- Turnover of up to €50 million or balance sheet total of up to €43 million
If your business fits into any of these categories, it’s an SME. And if you’re just getting started (maybe as a solo founder, a self-employed creative, or with a small team), you’re likely running a micro or small business.
This isn’t something you apply for or need to register. It’s just a widely used way of categorising businesses by size. It helps determine things like eligibility for grants, tax relief, and certain regulations.
Why are small and medium-sized enterprises important?
SMEs are a huge contributor to the UK economy. According to the latest stats from GOV.UK, at the start of 2024, 99.9% of the UK’s 5.5 million businesses were SMEs, with 99.2% being small businesses with fewer than 50 employees.
They’re responsible for around 60% of the country’s jobs — that’s 16.6 million people — and they contribute £2.8 trillion to the economy every year. So even though each SME may be relatively small on its own, together they power the nation’s job market and economic growth.
SMEs also bring life to local high streets, communities, and online spaces. Think of all the coffee shops, fitness studios and restaurants you regularly enjoy. Small businesses shape the culture of the places we live and shop.
And because they contribute so much to the nation’s economic health, SMEs also benefit from dedicated financial support. Many government funding schemes, tax incentives, and startup grants are specifically designed to help small and medium-sized businesses grow.
How to start a business in 5 steps
Here’s a simple step-by-step guide to help you go from idea to launch:
1. Choose your business idea
Start by identifying something you’re both passionate about and skilled at.
Consider what problem it solves for people. Is it a major issue or a minor inconvenience? Then ask yourself: Does your business idea solve this problem more effectively than existing solutions on the market?
Decide whether you’ll offer a product or a service, and think carefully about who your target customers will be.
If you’re not sure yet, read our guide on how real entrepreneurs found their big ideas. We share how Quality Company Formations (QCF) customers came up with their business plans and turned them into success stories.
2. Decide on your legal structure
Most UK business owners choose to register as a limited company or as a sole trader.
Sole traders are easier to establish and operate, while limited companies provide greater legal protection and may convey a more professional image. Read our guide, Sole trader or limited company – which is better for me?, to find out more.
3. Register your business
If you’re setting up as a sole trader, you’ll need to register with HMRC. If you’re starting a limited company, you can register using QCF. Check out our range of company formation packages to do this online. We make the process fast and stress-free.
4. Get your finances sorted
Open a business bank account, set up accounting software or hire a bookkeeper, and check whether you need any insurance (such as public liability or professional indemnity cover).
QCF offers a selection of business bank accounts you can choose from during the company formation process. Plus, take advantage of our exclusive Xero offer – enjoy 100% off for the first six months, available at checkout.
5. Start trading and promote your business
Once you’re registered and ready to start trading, it’s time to spread the word. Build a website, set up your social media profiles, and let your network know you’re open for business.
At QCF, we specialise in supporting new SMEs and have helped thousands of satisfied customers launch successfully.
Be sure to explore our hundreds of expert-written blog articles, offering practical advice and insights to guide you through every stage of your business journey.
Follow our guide on navigating the first three years in business to see what else you can do to grow a successful enterprise.
So there you have it…
SMEs are the heart of the UK economy, and there’s lots of support and advice available to help you succeed.
Want to learn more about starting a business? Browse our blog for tips, checklists, and guides made to support new entrepreneurs. Please leave a comment if you have any questions.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
Join The Discussion