What are 'Small And Midsize Enterprises - SME'

Small and midsize enterprises are businesses that maintain revenues, assets or a number of employees below a certain threshold. Every country and economic organization has its own definition of what is considered a small and medium-sized enterprise. In the United States, there is no distinct way to identify SMEs, but in the European Union, a small-sized enterprise is a company with fewer than 50 employees, while a medium-sized enterprise is one with fewer than 250 employees.

BREAKING DOWN 'Small And Midsize Enterprises - SME'

SMEs or small firms tend to be strong in the area of innovation. However, they struggle to attract capital to fund their endeavors, and in order to increase their chances of survival, various national governments and world organizations advocate implementing business education programs and increasing SMEs access to loans and government incentives.

SMEs in Emerging Economies

SMEs play a major role in most economies but a particularly significant role in emerging economies. SMEs create 80% of new jobs in emerging economies, and most people with formal jobs in these economies work for SMEs. However, over half of SMEs do not have access to the capital they need to grow. Rather than being able to access traditional loans, they rely on personal funds and loans from friends or families, a fact which hinders their growth.

SMEs in Canada

The importance of SMEs is not limited to emerging nations. Between 2002 and 2012, SMEs created 77% of new jobs in Canada, nearly the same percentage as in most emerging economies. These companies are vastly important to the country's well-being, both in terms of creating jobs and generating tax revenues. However, SMEs tend to have low survival rates, and in some cases, they fail to comply with tax reporting laws for a number of reasons. To remedy these types of issues, Canada and many other countries have implemented programs to coach SME business owners on how to make their businesses grow and survive. They also have special audit programs to target high-risk areas in order to boost tax compliance.

SMEs in the United States

For terms of tax reporting, the Internal Revenue Service does not categorize businesses into SMEs. Instead, it separates small businesses and self-employed individuals into one group and large to mid-size businesses into another. Small businesses are companies and self-employed individuals such as contractors and freelancers with assets of $10 million or less, and large businesses are those with over $10 million in assets.

RELATED TERMS
  1. Enterprise Multiple

    A ratio used to determine the value of a company. The enterprise ...
  2. Self-Employed

    A situation in which an individual works for himself or herself ...
  3. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  4. IRS Publication 334: Tax Guide ...

    A document published by the Internal Revenue Service (IRS) that ...
  5. Free Enterprise

    An economic system where few restrictions are placed on business ...
  6. Business

    1. An organization or enterprising entity engaged in commercial, ...
Related Articles
  1. Managing Wealth

    Financial Literacy Tools for Small Business Owners

    Learn more about where you can access some of the best free financial literacy resources and tools available for small business owners.
  2. Investing

    Explaining Enterprise Multiple

    The enterprise multiple is a ratio used to value a company as if it was going to be acquired.
  3. Small Business

    The Small Business Jobs Act: Make It Work For You

    Understanding how to manage business credit is the key to obtaining small business loans.
  4. Small Business

    Are You Considered a Small Business?

    Find out what it takes to be considered a small business by the U.S. Small Business Administration and why some small businesses are fairly large.
  5. Managing Wealth

    Want to Open a Small Business? Beware of These

    While all small businesses face long odds, these four types are even less likely to succeed.
  6. Small Business

    5 Warnings Signs of Risk for a Small Business

    Learn how to keep on the lookout for these five potential warning signs of risk that your small business is stalling out or failing.
  7. Small Business

    JPMorgan Survey: Small Businesses Optimistic

    According to a recent survey, small business owners are feeling good about the foreseeable future.
  8. Small Business

    The 4 Most Common Reasons a Small Business Fails

    Discover the most common reasons small businesses fail, including capital formation, management concerns, planning issues and marketing missteps.
  9. Personal Finance

    What's Free Enterprise?

    Free enterprise is the economic term used to describe an economy with very little government ownership or regulation. In a free enterprise system, competition and the preferences and choices ...
RELATED FAQS
  1. How is it possible for a company to have a negative enterprise value?

    Learn about enterprise value and how value investors use it to find good companies with undervalued stocks. Negative enterprise ... Read Answer >>
  2. What is the difference between free enterprise and capitalism?

    Read about the differences between free enterprise and capitalism, and how it is possible to conceive of one system existing ... Read Answer >>
  3. What is the difference between enterprise value and equity value?

    Valuating a business accurately depends heavily on the purpose of the valuation. Learn how enterprise value and equity value ... Read Answer >>
  4. What's the difference between enterprise value and market capitalization?

    Learn the difference between two commonly utilized valuation tools: market capitalization and enterprise value, and see how ... Read Answer >>
  5. What economic measures can be taken to encourage free enterprise?

    Learn about the types of economic policies that support free market capitalism, as espoused by thinkers in the classical ... Read Answer >>
  6. Can a company be state-run and publicly traded at the same time?

    A state-run company or enterprise cannot be publicly traded in the U.S. However, it is possible to purchase shares of state-run ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center