What Is A SME? The Important Facts In Australia
If you’re asking your self “what is A SME?” then this guide is for you.
The article explores the Australian Small to medium business market and any vital information you need to know as a business owner.
We will explore the business landscape and any essential facts to help you understand this crucial aspect of our economy.
An SME stands for “small to medium enterprise”. This description encompasses the vast majority of Australian small businesses.
Are you starting a business? Check out our step by step: How to set up a business.
What Is An SME?
An SME stands for “small to medium enterprise”. In Australia, this is a description for small businesses that fall under specific revenue and infrastructure thresholds.
Asking the definition of an SME can elicit different answers depending on the government department you speak to.
The ABS (Australian Bureau Of Statistics) defines SME’s by their employee numbers, whereas the ATO will define SME’s by their annual revenue.
Regardless of which definition you use, An SME is a small business included in a rather large group of Australian businesses.
In terms of the group, SME’s comprise over 90% of the Australian business economy and are responsible for employing millions of Australians.
Note: Below, we have included the statistics (by employee numbers) of Australia’s SMEs.
What Is Classified As An SME?
A small to medium enterprise is classified using a few standard criteria; this section will outline the classification framework by both the ABS and the ATO.
The following are the main criteria:
Employee Size. Australian businesses with a registered ABN with fewer than 200 employees can be considered small to medium enterprises.
A breakdown of business definition by size is below, noting that the first three fall under the SME umbrella.
- Micro-business employs between 0-4 persons
- Small business, between 5-19 persons
- Medium business, between 20 and 199 persons; and
- Large business employing 200 or more persons
Revenue. Australian businesses with an aggregated annual turnover of less than $10 Million. (This is the ATO definition).
SME Facts In Australia
When trying to understand more about small to medium enterprises, it’s also essential that we know the facts behind this massive contributor to the economy.
The data below is based on ABN registration statistics and is for the 2019/2020 FY.
Some of the main SME facts are as follows:
Annual Turnover. 28% of businesses had a yearly turnover of less than 50K. A total of 93% of businesses had a turnover of less than 2 Million.
Economy. Small to medium enterprises contribute over 50% of Australia’s GDP (Gross domestic product).
Employee Numbers. Over 99% of businesses in Australia have less than 200 employees.
Employment. Small to medium enterprises employ over 7 Million Australians.
SME Facts Around The World
Below are some critical global small business facts. It is important to note that the definitions of an SME can be different depending on the country or region of the world.
Some countries have a much higher threshold in terms of turnover and employee numbers etc.
Global Business Numbers. SME’s make up more than 90% of all businesses globally.
Employment. Over 50% of all the employees in the world work for, or operate as, a small to medium enterprise.
Benefits Of An SME
Agility– Due to the small size and nature of an SME, they can react and adapt much quicker to changes in the market or economy.
Knowing their customers – As these businesses are generally smaller, they can create a much better connection with their customers due to the core people in the business having greater exposure to aspects of customer service.
Lower startup costs – Generally speaking, setting up a small business is less expensive and quicker to do than a larger corporation.
Business Culture – Having a tight-knit team can provide a tremendous family-like culture; owners can get to know their employees as they have so few of them.
Niche Markets – Exploring niche markets, which larger companies may not find feasible, can allow small businesses to operate in a less competitive space.
Legal requirements – As a small business, you may have reduced legal and reporting requirements instead of a larger company.
Examples Of SME’S In Australia
Below are some examples of commonly structured small to medium enterprises in Australia. These will help outline what an SME is in real-world scenarios.
Contractor: Working as a contractor for a business in Australia requires you to have applied for an ABN. This also means you are a small business and operate within the SME category.
Freelancer: Similar to a contractor, a freelancer has an ABN and works for themselves. This is also considered a “non-employee” SME.
Family Business: A great example of an SME is a family business. Regardless of whether there are 2 or 20 employees, this is also classified as an SME.
Partnership: Forming a business partnership and working together as owner-operators is another typical example of an SME.