Meanings of SME

Over the years, after the Second World War, Germany has become the world export champion . Today the country is one of the undisputed industrial nations. Our country also owes this to its SMEs , because they represent the strong backbone of the German economy. You can find out what you need to know about SMEs in the following article.

SMEs – European Commission definition

SMEs are defined more precisely by the European Commission in EU Recommendation 2003/361 . The basis for this are defined orders of magnitude. According to Abbreviationfinder, SME stands for small and medium-sized companies , which are divided into the number of their employees and the turnover or their balance sheet total .

Good to know:

In the EU, SMEs are also known as SME . This abbreviation comes from English and means small and medium-sized enterprises . This definition is important because it is crucial for access to finance , but also for access to EU support programs. These are specifically geared towards SMEs and their definition.

Definition of micro-business

A micro enterprise is very often called a micro enterprise . It is a company that employs less than 10 people and

generates a turnover of less than two million euros per year or
has a balance sheet total of less than two million euros.

In most cases, the owner of a very small business pursues the goal of feeding or providing for themselves and their families with this business.

Definition of small businesses

According to the definition of the European Commission, small companies have fewer than 50 employees and

have a turnover of less than 10 million euros or
a balance sheet total of less than 10 million euros.

Definition of medium-sized companies

A medium-sized company is a company that has fewer than 250 employees and

the turnover at a maximum of 50 million euros or
total assets of a maximum of 43 million euros.

Criteria for classifying SMEs

Micro, small and medium-sized businesses

In the EU there have been threshold values or criteria since 01.01.2005 according to which an SME is classified. This classification is already evident from the definitions above. Seen at a glance, these criteria are as follows.

These thresholds are valid for all sole proprietorships . If it is a company that functions as part of a group, to have it both number of employees and turnover or find total assets of the whole group into account.

How do I calculate my number of employees?

The size of a company (up to 10 employees, more than 10 up to 50 employees and more than 50 employees) always refer to full-time employees in the DGUV according to regulation 2 . This means that when calculating the number of employees , you have to convert all your employees , including part-time employees, into full-time employees .

Method

To do this, proceed as follows: All employees who do not work more than 20 hours per week must be multiplied by the factor 0.5 . If someone works for you for a maximum of 30 hours per week , you have to use the factor 0.75 as a basis for the calculation .

Example:

You are an entrepreneur and you have 13 employees . These are made up as follows:

Type of employee	calculation
4 full-time employees	4x factor 1 = 4.0
7 employees part-time until 8 p.m.	7x factor 0.5 = 3.5
2 MA part-time up to 30 / h	2x factor 0.75 = 1.5
Number of employees converted to full-time	9.0

That would mean that you would have 9 employees in your company and you would therefore fall into the category of small businesses .

Definition of annual sales

The annual turnover is understood as the total turnover of all services sold in a year . The annual turnover, also called revenue , is calculated from the sales volume and the sales price .

Definition of annual balance sheet total

The annual balance sheet total is understood to mean the total of fixed and current assets on the assets side of a company and the total of equity and debt capital on the liabilities side at the end of a financial year.

Definition of company types

In addition to the size classification of SMEs, the different types of companies are also precisely defined.

Independent company

Companies that do not hold any shares or voting rights in a company are referred to as independent companies . This must not exceed a share of 25 percent . There are exceptions , however , if this threshold is 25 percent or more.

Government venture capital companies, universities or research institutes without the purpose of profit tracking, venture capital companies
Institutional trading investors (including development funds)
Local authorities that are autonomous and that have an annual budget of less than 10 million euros and fewer than 5,000 inhabitants

Affiliates

These are companies that must meet at least one of the following requirements:

The company is required to prepare consolidated annual financial statements .
The company holds the majority of voting rights by shareholders or members of another company.
The majority of employees from administration, management or from the supervisory body of another company can be appointed or dismissed by the relevant company.
The company is entitled to exercise control over another affiliated company through a concluded contract or through clauses in the articles of association .

These points also apply when there is a reversal in the relationships between the companies .

Partner company

A partner company is a company which, together with one or more other companies or alone, holds from 25 percent to a maximum of 50 percent of the capital or voting rights in another company . The same limit values also apply to shares held.

KfW templates and calculation sheets for SMEs

A KfW calculation scheme forms the basis for calculating the threshold values . This is available to every SME. You can find out what needs to be considered for the individual types of company mentioned above in the KfW information sheet on the definition of SMEs.

Advantages and problems of SMEs

As with a large company, there are also advantages and disadvantages in the area of SMEs , which we will discuss below:

Benefits of being an SME

An SME has flat hierarchies and structures in its organization. This gives you short decision-making paths and creates a high degree of flexibility and stability
There is a great proximity to the stakeholders . The customer contact is very close and also within the company the cooperation is personal .
Due to the proximity to the owner family in an SME, there is in most cases a long-term orientation for such companies .
Continuous innovations are created by selected and motivated employees.

Even if SMEs are also seen as job engines and great training companies, there are also challenges here:

Difficulties that SMEs pose

The resources in the areas of finance and human resources are very scarce . It is not uncommon for dual functions to occur.
Strategic knowledge and methods are very important for corporate success. However, SMEs very often lack the necessary knowledge here.

Examples of companies from SMEs

Type of business	Check criteria	SME: yes or no?
Painting company; 17 employees; Turnover per year 45,000 euros; independent company	→ Number of employees → Annual balance sheet total → Annual turnover → Company type	SME small business
Auto repair shop; 10 employees (including 3 part-time with 20 hours a week); Turnover per year 39,000 euros; independent company		Small and medium-sized enterprises
Manufacturer in office furniture; 310 employees; Annual balance sheet total of 58 million euros; Partner companies with a stake in a supplier company of more than 30%		Not an SME