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What Is a Small Business?

Defining a small business in 2023 is harder than you might think. There are various factors that come into play that small business owners need to consider before declaring their business.

In this article, we’re answering the question of what is a small business, along with some interesting information on how the size of your business can affect various considerations like energy usage, government assistance, and insurance.

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Does Everyone Have the Same Definition of an SME?

There are various definitions of an SME (Small and medium-sized enterprises) based on a variety of factors. Since there are different definitions, knowing if your business falls within a certain SME category can be a challenge.

Whether it’s a person, business, or government, the definition of SME can change. This complicates things because you never truly know what your business is without a true definition.

Knowing the various definitions based on the institutions or countries you’re dealing with can help.

Here are how some countries define SME:

  • UK: The UK government classifies an SME as an organisation with under 250 employees and a balance sheet of less than €50 m. A small business has less than 50 employees with a balance sheet of less than €10 million.
  • EU: The EU usually defines a small business as one that has no more than 50 employees and has a balance sheet under €10 m. A medium-sized business is one that employs less than 250 people and has a balance sheet of less than €43 m.
  • US: The US definition changes from industry to industry. Generally, an SME has less than 500 employees and a balance sheet of less than $7.5 m.
  • AU: Australia has two definitions. A small business is one with less than 20 employees, while a medium-sized company has less than 200.

Do you see why it’s so difficult to define what an SME truly is? The meaning can be based on where you are, your balance sheet, or the industry you’re in.

But since you’re in the UK, it’s best to stick with what the UK government defines an SME as (fewer than 250 employees and less than €10 m).

If your business has less than 10 employees and a balance sheet of less than €2 million, you would be considered a micro business. These are fast becoming one of the most reported enterprises in the UK.

Wherever your business fits in, comparing energy prices is one of the best things you can do to lower your monthly spending. Speak with one of our Business Energy Comparison consultants to see how we can reduce your monthly energy bills.

Does the Annual Turnover Matter?

Annual turnover (balance sheet) shows the amount of money a business makes in a tax year. The annual turnover of the business matters because the UK uses it to help determine the size of your business.

Here is how the UK uses the annual turnover to determine business size:

  • Micro businesses: Equal to or under €2 million
  • Small businesses: Equal to or under €10 million
  • Medium businesses: Equal to or under €50 million

Luckily, when doing an electricity comparison, we don’t look at your annual turnover to define the size of your business. We use your annual usage to determine where you fit on the business size scale.

For the average business that doesn’t require large amounts of electricity to supply machinery, like manufacturing businesses, the power usage does work out pretty similarly to the number of employees as above.

Still, conducting a sufficient energy prices comparison can come in handy if you want to find the best possible provider for your business needs.

Business Energy comparison

It’s a multi-rate plan for your electricity supply. You might also hear it referred to as a peak / off-peak tariff.

It’s available to business and domestic customers. You’ll essentially pay two rates for your electricity: a regular day rate, and a cheaper rate for seven overnight hours (hence the 7).

So, for example, if you own a bar or nightclub that predominantly operates during late-night / early-morning hours, you could potentially save money on your business electricity with an Economy 7 tariff. This is because you’ll be consuming most of your electricity during those cheaper rate hours.

However, the standard day rate or peak time will be more expensive than a standard rate. This means if you operate for a period during the day, before reopening late at night, your business probably wouldn’t benefit from being on Economy 7.

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Does Energy Usage Matter?

Energy usage won’t affect how the size of your business is defined by the government, banks, or other businesses, but it will affect how an energy supplier defines your small business.

Each supplier will have its own average usage calculations, here is our business energy comparison based on the average annual usage:

  • Micro businesses: 44.9p (price per kWh) – £4,836 per year (average annual: 10,000 kWh)
  • Small businesses: 40.7p (price per kWh) – £8,565 per year (average annual: 20,000 kWh)
  • Medium businesses: 34.6p (price per kWh) – £14,214 per year (average annual: 40,000 kWh)
  • Large businesses36.1p (price per kWh) – £20,359per year (average annual: 40,000 kWh)

Please note, that this is merely an average estimate of what we have reported for our customers’ many businesses. Your price will ultimately be determined by your business’s usage.

Does Business Size Affect Insurance Costs?

There is no doubt that every business in the UK needs insurance, regardless of whether you’re a sole trader or a large conglomerate, insurance is essential.

Insurance company premiums can be a helpful indicator for defining an SME, but it’s not the be-all and end-all as the premium is affected by many factors, including:

  • Company size
  • The type of insurance
  • Business Industry
  • Asset value
  • Claims history
  • Turnover
  • Debt

But in general, here are the average insurance premiums in the UK based on business size:

Overall, the size of your business will affect the cost of insurance because the more people, equipment, and financials you need to be covered, the higher your premium will be.

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Are You a Small Business Owner?

In the UK, you need to use the government’s definition of a small business to register your new business as such. To do this you need to consider the number of employees (less than 50) and the annual turnover (less than €10 million per year).

If your small business does meet the criteria and you’ve registered, then it’s time to start comparing gas suppliers and evaluating your utilities. It’s important to know what your small business is using and whether there is a way to reduce this by switching energy suppliers.

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What are the Benefits of Declaring Myself as an SME?

Declaring your business as an SME can impact a lot, including your energy rates, credit facilities, insurance contributions, and taxes.

One of the major benefits of declaring yourself as an SME is that certain government grants and funding are available. These are perfect for a startup because, unlike money you borrow, you don’t need to pay grant money back!

However, take note that the definitions of small companies are monitored closely and there will be strict guidelines as to what the grant money is for.

The Foreign, Commonwealth and Development Office is dedicated to providing local businesses with as much help as possible. Their SME Action Plan shows just how much the government commits itself to helping new and established SMEs to drive the economy into the future.

Don’t worry large business owners, we didn’t forget about you. There are also ways for you to save money, and that starts with an energy comparison of your large business!

Start your journey and compare business gas and electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

Frequently Asked Questions

What are the benefits of starting a small business?

Starting a small business has many benefits, including better customer relationships, flexibility, and quick adaptation to market changes.

What is the difference between a small business and a startup?

Generally, both are established by entrepreneurs. However, a startup business plan is usually more focused on innovative services and products in quickly growing markets. Small businesses are generally more stable with longer-term sustainability.