What is a small business?

Small and medium enterprises (SMEs) make up 99% of businesses in the UK, but not all small businesses are classed SMEs - and the classification of your business can have an impact on how you run it. 

If, for instance, you fall into the ‘microbusiness’ category, then you’ll find switching energy supplier is slightly easier than it is for other types of business.

There are a number of factors that determine whether or not your business is classed as a SME. Take a look at our simple guide to see where your firm fits in.

What is a SME?

When asked 'what is a small business?’ different people will give different answers - not everyone subscribes to a simple definition and different organisations use their own criteria to determine what constitutes a SME.

While small businesses are at the heart of the UK – helping to provide jobs and support to the economy both on a local and national scale - it can be difficult determining exactly which firms fit into the category. 

The problem in providing specifics when trying to define small and medium enterprises, is that no one can agree on a single description. Where the European Union (EU) offers its own SME definition, UK bodies such as Ofgem have a different interpretation of how medium, micro and small business sizes should be defined.

For example, the EU's business size standards use turnover, balance sheet total and employee size to determine their definition of a SME. However, this may not be appropriate in certain industries, with utilities organisations preferring to consider energy usage when deciding on suitable business size definitions.

Another issue with trying to determine how a small business is defined is that official bodies will frequently review their SME definition to reflect social and economic changes. Micro businesses, for example, are becoming more common place. 

So, in order to answer the question ‘what is a micro business?’, the government has issued its micro business definition to help distinguish between the needs of microbusinesses and small businesses.

Do sales figures and turnover matter?

Sales figures can be used to determine a number of things about a business, including its size. The EU chooses to use a company’s annual turnover to help define their business size standards. (figures are converted from euros and are subject to exchange rates.)

Business sizeAnnual sales
Micro businessLess than £1,400,000  
Small business  Between £1,400,000 and £7,000,000  
Medium business Between £7,000,000 and £36,000,000 
Between £7,000,000 and £36,000,000 More than £36,000,000 

Does the number of employees matter?

The number of staff that a business employs is one of the most widely accepted ways of indicating SME size. These figures can often change from country to country, but below are the official benchmark figures as set out by the EU.

Business sizeNumber of employees 
Micro businessLess than 10
Small business  Between 11 and 50
Medium business Between 51 and 250 
Large business   Between 251 and 1,000  
EnterpriseMore than 1,000 

Does the annual turnover matter?

The ultimate metric that many businesses’ success is measured by is profit - and the same is true when trying to determine size. The EU has offered the following figures to help people understand their SME definition. (figures are converted from euros and are subject to exchange rates.)

Business sizeAnnual turnover   
Micro businessLess than £1,400,000  
Small business  Between £1,400,000 and £7,000,000    
Medium business Between £7,000,000 and £31,000,000 
Large business   More than £31,000,000    

Does energy usage matter?

When organising your business energy contract, a SME definition is required to know what type of contract would best suit your needs. Below you can find the definition of micro, small, medium and large businesses by annual energy usage, ordered by the average business energy usage.

How much electricity does your business use?

To give you an idea how much energy your business should be using, here's a guide to average business electricity usage.

Business sizeElectricity use by kWh  
Micro businessBetween 5,000 kWh and 15,000 kWh   
Small business  Between 15,000 kWh and 25,000 kWh   
Medium business Between 30,000 kWh and 50,000 kWh 
Large business   More than 50,000 kWh      

How much gas does your business use?

To give you an idea how much energy your business should be using, here's a guide to average business gas usage.

Business sizeGas use by kWh  
Micro businessBetween 5,000 kWh and 15,000 kWh  
Small business  Between 15,000 kWh and 30,000 kWh   
Medium business Between 30,000 kWh and 65,000 kWh
Large business   More than 65,000 kWh    

Does business size affect insurance costs?

The majority of businesses will take out business insurance to protect their financial security, and this can be another useful indication of their size. This method is not formally recognised by any official bodies outside of the insurance sector, but it is a good way to further define what a SME company is.

Business sizeInsurance premium cost  per year 
Micro businessLess than £500    
Small business  Between £500 and £2,000    
Medium business Between £2,000 and £6,000  
Large business   More than £6,000   

Are there any exceptions?

When defining the size of your business, there are some exceptions to be aware of. The main one is that an enterprise must be autonomous or part of a group of affiliated enterprises that together fall into the categories laid out above. 

If, for example, your business is a franchise or has a close working relationship with another enterprise - and you exceed the threshold for the SME definition - then this means you cannot define your business as such.

Are you a small business owner?

In order to define your business’s size you must first measure it against the corresponding employee number. In addition you must also measure it against either the turnover or profit figures.

Providing you meet these criteria, you can declare your business as a SME on the government website by downloading this form and filling it in.

What are the benefits of declaring myself as a SME? Due to the number of benefits that are offered through government schemes, there has never been a better time to declare your business a SME. In fact, it has been estimated that Britain’s small businesses could be entitled up to £10,000 worth of savings, all of which will help to strengthen your business’s bottom line.

The government has pledged the following to SMEs:

  • £1.1 billion support package for SME business rate relief.
  • Up to £2,000 for 20,000 businesses to encourage growth.
  • Up to £3,000 per SME to secure faster broadband connectivity.
  • A £2,000 Employment Allowance to reduce National Insurance Contributions.
  • SMEs will also benefit from the future scrapping of regulations to save all SMEs over £800,000,000 a year.

Now is a great time to run a SME. To find out more about the SME benefits that are offered through government incentives, visit the UK government website.

Get in touch with the tech-enabled team at Bionic to make great savings on business energy and broadband, and find business insurance to protect against the unique risks that face your business.