Time for a rethink on the SME classification

Now is an opportune moment to find a more focussed definition of business size.

Now is an opportune moment to find a more focussed definition of business size.

We’ve all been told that SMEs are the saviours of the British economy, that the entrepreneurial spirit brewing up will drag us out of the quagmire that we have been sitting in for the last five years.

SMEs, or small and medium-sized enterprises in its entirety, is a blanket description commonly used to describe businesses of under 250 staff.

Each new funding initiative or mentoring scheme or grant system introduced has SMEs at its heart, as the powers that be look to balance the field a bit when it comes to competing with large corporate machines.

But comparing a company with 200 employees to a business with 5 staff is a little like comparing a recent graduate with a high-flying city boy – they are two very different entities.

I’ve had many discussions over the last couple of years when the subject of ‘the SME’ has come up, and universally there has been an agreement that there must be a better way to classify businesses of a certain size.

The issues facing micro businesses which are often set up at home and run alongside a separate full-time job are nowhere near the problems facing growth-stage businesses.

Cottage industries need things like cheap internet, help with filing accounts and access to grants. At the other end of the SME spectrum, those with 250 staff want to find out how to access new export markets, hire the right kind of CTO and possibly took towards a profitable exit.

To lump these kind of companies together is not only ignorant, but counterproductive when producing legislation aimed at stimulating business growth.

A better approach would be to fully recognise the growing army of micro businesses which are being set up by people fed up of frozen salaries and lack of career progression. These kind of people, who have never before set up a business, are full of enthusiasm but lacking when it comes to practical knowledge.

These are not the kind of people who will benefit from encouraging apprenticeships, or guaranteeing big bank loans. 

The growth ventures which commonly feature on this site are often experienced at business building, having done it a number of times before. Funding initiatives like SEIS and the new business bank are the right kind for them.

So perhaps we could simply call these guys growth enterprises – creating a distinct difference from fledgling micro companies.

If we are, as a country, going to pin so much hope on entrepreneurs and the businesses they are building, a reclassification should be the first point of order.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for GrowthBusiness.co.uk from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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