SME Meaning, Definition, and Importance. What Counts as an Australian SME?
SME stands for Small to Medium Enterprise. In Australia, a business is classified as an SME if its number of employees or annual turnover is below a set number. Most businesses in Australia are considered to be small and medium enterprises, together making up over 55% of our GDP (ABS). The Australian Bureau of Statistics (ABS) considers any business with under 200 employees to be a medium business and any with under 20 employees to be a small business.
Understanding Small and Midsize Enterprises (SMEs)
How many SMEs are there in Australia?
Although small, the pure number of small to medium-sized enterprises (over 99% of the 2,402,254 businesses operating in Australia during 2020-2021) more than makes up for the difference in individual business revenue and employee numbers to large companies. Almost every industry is built on many SMEs, but they are most common in fields with lower staff requirements and where less upfront capital investment is required. Typical SMEs include bars, dentists, lawyers’ offices, and restaurants.
About a quarter of all Australian businesses are micro businesses, meaning they only have 1-4 employees, while around 60% of small businesses are sole traders who are non-employing.
What counts as an SME?
According to the ABS, a small enterprise is one with 19 or fewer employees, while medium businesses have 199 or fewer.
However, the ATO (Australian Tax Office) classifies businesses based on total annual revenue. To the ATO, small or micro enterprises are ones with an annual turnover of $10 million or less, and medium-sized enterprises have a turnover of between $10 million and $250 million. Then, of course, large companies are ones with an annual turnover of more than $250 million.
The Importance of Small and Medium-Sized Enterprises
Over 50% of the total value of Australia’s GDP comes from small and medium enterprises. In 2018-2019, this was at 55%, and the SME sector has only continued to grow. Medium-sized businesses saw the most significant growth over the 2020-21 period, with a 20.6% increase in the number of operating businesses. This was closely followed by the number of micro-businesses (those with 1-4 employees) increasing by 15.2%.
Highest Growing sectors in 2020-2021
Over 2020-2021, the ABS saw significant increases in many industries. The three with the largest percentage growth are:
- Health Care and Social Assistance with a 7.2% increase.
- Retail Trade with a 6.3% increase.
- Education and Training with a 5.3% increase.
The SME sector has continued to grow throughout 2022, with a 1.8% growth in the number of businesses as of March 2022.
Small and medium enterprises make up the Australian economy’s backbone, but there are many challenges preventing your business from succeeding long-term.
SME Barriers to Success
More than half of small to medium enterprises fail quickly, shutting their doors within the first five years. While there are some metrics and strategies you can use to measure your success, a business failure comes down to two issues most of the time:
- Having excessive debt.
- Finding new sources of SME financing.
OnDeck understands these issues, so we offer business loans for SMEs at competitive rates. We want to bolster emerging markets and help keep more small businesses running.
If your business has:
- Been operating longer than 1 year
- A business credit score of at least 400 and
- At least $100,000 gross annual turnover
then you may be eligible to apply for an OnDeck loan of between $10,000 and $250,000 to improve the cash flow of your business.
You can check your business credit score using our Know Your Score tool. It’s free and leaves no footprint, so you can check regularly to keep on top of any dips.
Australian Bureau of Statistics
Australian Tax Office
Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at August 2022. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.