Small and medium enterprise (SME)

Definition

Small and medium enterprise (SME) refers to businesses that typically have a relatively small number of employees and generate modest levels of revenue compared to larger corporations. 

What is a small and medium enterprise?

SMEs are characterised by their smaller scale compared to large corporations. The exact criteria defining an SME can vary, but parameters such as the number of employees, annual revenue, or balance sheet total are often used to categorise businesses as small or medium-sized.

Furthermore, SMEs are typically independently owned and operated. They may be sole proprietorships, partnerships, or privately owned companies. This independence allows SMEs to be more flexible in their operations compared to larger, more bureaucratic organisations.

SMEs play a crucial role in driving economic growth and development. They contribute to job creation, innovation, and competition in various sectors. In many economies, SMEs are considered the backbone of the economy, as they make up a significant portion of total businesses and employment.

A downside for SMEs are that they may face challenges in accessing resources such as capital, skilled labor, and technology, particularly in their early stages of development. However, advancements in technology and changes in business models have facilitated greater access to resources for SMEs.

Example of a small and medium enterprise

A small enterprise might be a local bakery owned by a family, employing a handful of staff, and generating revenue primarily from local customers. It could have a modest storefront, a small production area, and annual revenues of around ₦500,000.

A medium-sized enterprise could be a regional chain of grocery stores with several locations across a city or a state. It might employ dozens to hundreds of staff, serve a broader customer base, and have annual revenues ranging from ₦5 million to ₦50 million.