What Is An SME? The Important Facts In Australia
If you’re asking your self “what is an SME?” then this guide is for you. In the article, we explore the Australian SME market along with any important information you need to know as a business owner.
We will explore the business landscape and any important 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.
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What Is An SME?
An SME stands for “small to medium enterprise”. In Australia, this is a description for small businesses that fall under certain 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 that is 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 the SME’s in Australia.
What Is Classified As An SME?
A small to medium enterprise is classified as such using a few common criteria, in this section, we will outline the classification framework by both the ABS and the ATO.
The following are the main criteria:
Employee Size. Australian businesses 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 all 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).
Facts In Australia
When trying to understand more about small to medium enterprises, it’s also important that we undertand the facts behind this huge contributer to the ecomony.
The data below is based on ABN registration statistics, and is for the 2019/2020 FY.
Some of the main SME fact are as follows:
Annual Turnover. 28% of business had an annual 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.
Facts Around The World
Below are some key global small business facts. It is important to note that the definations of an SME can be different depending on country or region sof 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
Common mistakes to steer clear of when planning a meeting:
- 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 great family-like culture, owners can really 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 business to operate in a less competitive space.
- Legal requirements – As a small business, you may have reduced legal and reporting requirements as opposed to 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 common example of an SME.
Other Important Questions
Can A SME Have No Employees? Answer: Yes, an SME can be an owner-operator with no employees.