Definition of small business and SME
Historical growth and Development of SMEs
Importance of SMEs to the UK’s economy
SMEs by the Regions in the UK
Summary and Conclusions
The aim of this report is to define the Small and Medium Enterprise (SME), to outline its growth and development throughout the historical data evidence, to define its significance to the UK’s economy and compare the effect it has on a regional level within the UK.
DEFINITION OF SMALL BUSINESS AND SME
There is no a single definition, as such, for small business. What can be defined as a small business depends on various factors of which two are vital: the industry segment and market in which the business runs. There have been many attempts to define the small business. For example the Bolton Committee (1971) came to conclusion that there should be: •
statistical definition - the size is important factor (number of employees and annual turnover or value of assets), and •
economic definition - qualitative measure of small business. This is explained more in detail in the Table 1 and Table 2 on the next page.
Table 1 – Bolton’s statistical definition of small business The 'Statistical' definitions
200 employees or less
Construction, mining and quarrying
25 employees or less
Retail and miscellaneous services
Turnover of £50 000 or less Motor trades
Turnover of £100 000 or less
Turnover of £200 000 or less
5 vehicles or less
All excluding multiple and brewery managed houses
Source: Deakins, D. and Freel, M. (2003) Entrepreneurship and small firms
Table 2 – Bolton’s economic definition of small business The 'Economic' definition
Small firms are those which:
1. Have a relatively small share of their market place
2. Are managed by owners or part-owners in a personalised way, and not through the medium of formalised management structure 3. Are independent, in the sense of not being part of a large enterprise Source: Deakins, D. and Freel, M. (2003) Entrepreneurship and small firms European Commission (EC) considers any entity regardless of its legal form but engaged in economic activity to be an enterprise, Deakins and Freel (2003). To overcome issues around identifying a definition for small business in particular, EC has decided to use the phrase small and medium-sized enterprise (SMEs), and it includes micro enterprise, small enterprise and medium enterprise altogether.
To be classed as SME business must have less than 250 employees and must meet one of other two factors: •
Annual revenue (turnover) must not exceed 50 million euro, or •
Annual balance sheet total must not exceed 43 million euro. This is to ensure that all SMEs get fair treatment independent on the environment and type of the economy they operate in. More in detail the new definition from 2005 by European Union is explained in Table 3. Table 3 – EU SMEs definition
Source: Storey, D.J. and Greene, F.J. (2010) Small Business and Entrepreneurship
UK generally accepts the EU definition from 2005 and to be in line with it Euro values are converted to Sterling Pound. The Companies Act 2006 however, for the need of accounting requirements, has its own definition (sections 382 and 465), UCL (2012). According to this a medium size company has 250 employees or less, with turnover of £25.9 million or less and balance sheet total of under £12.9 million, where as a small company has 50 members of staff or less, with annual turnover of £6.5million or less and balance sheet total of no more than £3.26 million. There is no mention of micro size business in this. There is also a definition that divides small and medium businesses relating to Value Added Taxation (VAT) registration, as every company must be registered for VAT if they meet a threshold. This is a relative measure of business population as it is sensitive to changes of thresholds. For...
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