Telling the truth about SME life today

SME is an abbreviation for Small and Medium-sized Enterprises. The typical SMEs have below 250 employees with less than £45 million in turnovers. However, they are essential to the economy of any country and even contribute to about 99.9% of businesses in the United Kingdom. SMEs also take up 55% of the private sector’s labour force. 

We explain the meaning of SME in this article and discuss the advantages and how to run a successful SME either as an individual or business partnership. This article also covers the challenges of running an SME.

How is an SME defined?

Let’s talk about SME meaning and the factors that determine whether a business is one or not.

The three factors that define an SME are: 

  • The number of employees within the business
  • The business turnover
  • The size and length of the balance sheet

As of 2022, the United Kingdom had about 5.5 million SMEs and the number keeps increasing. Check out the other details of those statistics below.

  • 5.47 million of the SMEs were majorly small businesses that had 0 – 49 employees. Only 1.4 million of that data employed more people.
  • 35,900 of the SMEs were medium-sized businesses with 50 to 249 employees.

What are the Advantages of SME status in the UK?

SMEs in the United Kingdom are essential because of the value they contribute to economic growth. That explains why there are a lot of advantages of SME status and why the government put measures in place to support their continuous development.

  • One such benefit is the easy access to government funding and support schemes. An example of an available government initiative is the Enterprise Finance Guarantee which approves loans to SMEs that require financial assistance.
  • SMEs can also benefit from the different tax breaks to save money and keep track of their compliance obligations. It is a much-needed support initiative, especially for startup SMEs that do not have sufficient experience to adhere to every tax requirement and deadline. This just further proves how much the UK government supports SMEs.
  • The last key advantage of an SMEs is from the customer’s point of view. Customers generally trust SMEs since they are small or medium-sized businesses that are easily available and more responsive. That gives the average SME a little competitive advantage, especially at the grassroots.

How to Run a Successful SME

Despite the generous support of the government towards SMEs, running one is no mean feat. It requires a lot of planning and effective strategies. In addition, the following are factors to consider if you want a successful business.

A Thorough Business Plan

As the manager of a small or medium-sized enterprise, you must plan effectively and have an actionable roadmap. In other words, have a detailed business plan that helps you make the best decisions using available data. The complete business plan is one that explicitly states the target objectives, budget and proposal.

Adaptability

SME meaning is Small and Medium-sized enterprises and that tells one thing – you are managing a business that most likely has much bigger competitors. The market requirements are constantly changing including the demands and expectations of customers. Therefore, it is essential to go with the flow and improve or risk being left behind. Every manager of an SME should be adaptable and ready to implement new ideas.

The Right Marketing Strategy and Execution

Learning how to run a successful SME also requires proper marketing knowledge and strategy. Firstly, the business must have quality products/services that meet customer expectations but that is useless if the target audience does not see your products.

Hence, effective marketing is important for SME growth and development. Leverage available social media platforms, email newsletters and search engine optimisation strategies to promote your business brand to prospective customers. Online or physical advertising can be done in a variety of ways and you have to decide what platform guarantees optimal advertising results.

The Best People

Another useful tip for running a successful SME is to surround yourself with the best people. While loyalty is an important criterion for recruiting team members, ensure they are also qualified and ambitious individuals.

The best team is one that comprises people who share the same vision and are totally committed to supporting one another to make that vision a reality. Everyone that contributes to the business process is a team member such as the employees, suppliers, business partners and investors.

Customer Service

An excellent customer service team is essential for any SME interested in thriving in a competitive industry. You need a trained customer service team that is friendly and patient to resolve customer’s concerns professionally. Customers generally want the best services and an assurance of value for money. Therefore, providing customer support options can increase their loyalty and retention rate.

High-Quality Products and Services

High-quality products are a recipe for any SME that aims to grow and develop. Think of it like a building’s foundation. The success of every other strategy like advertising, good customer support, and a professional website all depend on whether your products are top-quality. Otherwise, it is more difficult to promote the business and lots of negative feedback from previous clients can discourage new buyers.

How to Set Up an SME

Learning how to start an SME in the United Kingdom (UK) is straightforward. Follow the steps below to effectively set up your small or medium-sized enterprise (SME).

1. Choose Your Business Structure

Decide what business structure fits your startup idea. There are a variety of business structures to choose from like sole proprietorships, partnerships, limited liability companies, partnerships and limited liability partnerships.

    • Sole proprietorship: these are SMEs with one proprietor who runs and manages the business. The business enjoys much flexibility, but the owner is entitled to all the profits and bears the liabilities alone.
  • Partnership: a very similar model to the sole proprietorship. However, there are two or more business owners for partnerships and they share both the profits and liabilities. 
  • Limited liability company: a business structure that provides limited liability or prevents its shareholders from personal losses for liabilities.
  • Limited liability partnership: works like the partnership business structure but members enjoy limited liability. In other words, they do not take losses that exceed their nominal share value

2. Register Your SME

Once you have determined the perfect business structure, the next step is understanding how to register your SME. There are different authorities for that, depending on your specific location.

Prospective business owners in England and Wales can register through the Companies House, while those in Scotland and Northern Ireland have to go through the Registrar of Companies.

The usual required details for complete registration are simple and include the company name, registered address, director’s details and shareholders information. However, it is important to note that SME registration is not required for Sole proprietorships and partnership business structures.

3. Set Up Your Business Accounts

The basic advantage of creating a business account is to separate the SMEs income from your personal finances. Even for sole proprietorships, it is encouraged to have a business account to track financial progress and file taxes properly. Setting up a business account should be done immediately after you register the SME. businesses with multiple partners can set up accounts with more than one signatory. There is no excuse for not having a business account.

4. Organise Your Business Taxes

An essential responsibility as a business owner is paying taxes on every profit the company makes. That involves full legal compliance with the tax requirements and payroll legislation for businesses with employees.

The Pay As You Earn (PAYE) is an effective model for companies with employees. The HM Revenue & Customs (HMRC) is the body in charge of receiving filed tax returns and could charge fines for late payments or tax evasion.

5. Get Advice and Support

There is a lot of free advice available online for every manager looking to set up their new business. The local chamber of commerce is one such source that offers resources to grow as an SME.

It is also necessary to get support and an enabling environment to thrive. The United Kingdom (UK) is one of those countries that completely supports SMEs through many financial initiatives like the Enterprise Finance Guarantee Scheme.

The Challenges of Running an SME

Starting an SME is straightforward with some countries like the UK in constant support of small and medium-sized enterprises. However, there are a few challenges to running an SME.

Cash Flow Management

Due to their limited sizes, it is common for some SMEs to experience challenges with managing the cash flow for operating expenses. There must be a balance between income and expenditures. The profit and achieved targets must also be properly identified.

Otherwise, the business could run at a loss and be forced to declare bankruptcy. An effective cash flow management process determines the business’s health and should be prioritised. Business managers struggling with cash flow management can try any technology that automates and tracks payment. You can also consider consulting a financial expert to ascertain your readiness before launch.

Accessing Talent

Recruiting qualified talents is the next challenge of running an SME. The talent pool is usually large and hiring employees involves a lot of considerations. You need the best talents that are dedicated and with related experience. The perfect employees must also share similar ideas to those of your business startup.

A solution is outsourcing the recruitment process to recruitment agencies or collaborating with local universities, and colleges to get motivated talents. You should also be ready to offer competitive salaries and benefit packages to the top talents hired.

Finding Funding

Getting loans or financial help as an SME is challenging since there is usually no significant collateral compared to the bigger companies. The perceived risk of lending to a small business can discourage potential investors.

Hence, having a well-developed plan helps your business negotiate better financial deals since it demonstrates the viability of your SME to investors. Some alternative funding options also exist like crowdfunding and there is the possibility of applying for financial support from independent organisations and the government.

Navigating Legal Requirements

Compliance with constantly changing tax regulations is another challenge of running an SME. Small and medium-sized enterprises with little experience can struggle to stay up-to-date and incur significant compliance costs.

Ignorance or lack of information is not an excuse for breaching legal compliance issues. Therefore, we recommend consulting legal experts or hiring a tax lawyer to confirm that your SME is fully compliant with all the necessary regulations. Always seek advice or more information from appropriate sources when in doubt.

Competing with Bigger Organisations

In reality, the bigger companies and corporations would almost always have the upper hand. They have more resources and control over the market trend which can make it difficult for small and growing businesses to get noticed.

While that holds true for most industries, the small business owner can attempt to compete from a unique perspective. Study the market and exploit overlooked gaps and needs. Unique products and high-quality products can get you a few customers with the right strategy. You’d be surprised to see how many customers actually prefer SMEs because of the more personal purchase experience.

UK Inflation Rates

The inflation rate in the UK and many other developed nations sometimes makes it difficult for small and medium-sized enterprises to survive. It leads to fluctuating prices and higher rents that require a flexible and effective price model strategy to run at a profit.

What are the Benefits of Running an SME?

The top benefit of running an SME is the financial freedom to make decisions and determine the business direction. Records of profits are directly maintained by you and you decide the best investments. You’d also enjoy a better relationship with your customers and develop a strong brand identity from good interactions with them.

Lastly, many SMEs are family-owned and serve as an opportunity for everyone to bond and achieve great things together. Although there is a saying that “Never work with family”, that only holds true when there is no proper business plan. Families provide extra minds that are thinking in the same direction.

Final Thoughts

The role of SMEs in any economy such as the United Kingdom (UK) is important despite the few challenges that might come with establishing one. However, a proper understanding of SME meaning and how to run a successful SME helps with that.

There are many benefits as outlined in this article and we listed steps to set up your small and medium-sized enterprises. You can get started today using this guide as a reference point.

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