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SME Definition: What Is an SME in Australia?

sme definition sme meaning sme australia

SME, meaning small-to-medium enterprise, is a term used to describe a range of businesses based on the number of employees or annual turnover. These enterprises represent the vast majority of businesses in Australia, employ millions of people, and are the engine of the economy, responsible for 55 per cent of GDP. But what’s the definition of SME? Here we look at small-to-medium-sized enterprises, how they are defined in Australia, and their economic impact.

Total number of small and medium enterprises in Australia

If we use the Australian Bureau of Statistics (ABS) definition of small and medium businesses, based on the number of employees, 99.8 per cent of all businesses are SMEs. These include: 

Employees  Number of businesses % of total
0 to 19 (small) 2,314,647 97.4
20 to 199 (medium) 56,835 2.4
200+ (large)  4,271 0.2
Total 2,375,753 100

Most of the businesses in the 0 to 19 employee category are non-employing businesses (sole traders) and account for 62.8 per cent of all businesses. Micro businesses, which employ 1 to 4 employees, account for an additional 25.7 per cent of all businesses. The remainder in the small business category (with 5 to 19 people) account for 8.9 per cent of all businesses. 

The ATO SME definition is based on annual turnover and categorises small businesses as those with an annual turnover of $10 million or less. By their definition, medium businesses have a turnover of between $10 million and $250 million, and large companies have an annual turnover of more than $250 million. These large enterprises include private, public and foreign-owned companies, trusts, partnerships and super funds. 

Due to the size of their economies and other factors, the definition of SMEs is different in the United States and the European Union.

SME contribution to Gross Domestic Product (GDP)

The bulk of the value added (total value of all final goods and services produced) contribution to GDP in Australia is from SMEs. Small businesses contributed $418 billion of value added to GDP in 2018-2019, representing over 32 per cent of the total. Medium businesses contributed $287 billion to GDP, 23 per cent of the total. When you combine small and medium-sized enterprises (SMEs), they contribute 55 per cent to Australian GDP. 

In addition to their significant contributions to the overall value added, SMEs in Australia add more value than large businesses in the following sectors: 

  • Agriculture, forestry and mining – 76 per cent of total value
  • Rental, hiring and real estate services – 74 per cent of total 
  • Construction – 56 per cent of total 
  • Other services – 56 per cent of total
  • Professional, scientific and technical services – 42 per cent of total

SME contributions to employment

In addition to contributing to Australia’s Gross Domestic Product, SMEs employ the majority of people. According to ABS figures (from 2018-2019), small businesses employed 4.7 million people (41 per cent of the total business workforce, medium businesses employed 2.9 million people (25 per cent). Large businesses employed 3.9 million people. So SMEs employ two-thirds of the business workforce in Australia.

Top sectors for SME growth in 2020

In 2019-2020, the number of businesses increase by 46,651, or 2 per cent. Three sectors grew at unusually high rates. These were:

  • Transport, postal and warehousing
  • Professional, scientific and technical services
  • Health care and social assistance. 

These three sectors accounted for more than half of the net annual increase in the number of businesses.

The biggest challenges for SMEs

According to ScotPac’s SME Growth Index (November 2020), the top challenges for SMEs in 2021 are: 

  • Paying down debt/reducing leverage – 22.1%
  • Securing/increasing their customer base – 16.1%
  • Diversifying their funding base – 16.0%

In addition, 72 per cent of SMEs had experienced cash flow issues in 2020. 

A growing number of small-to-medium enterprises are considering alternative forms of business finance. One in 12 SME owners are now twice as likely to consider non-bank funding and one in eight plan to use non-bank funding in the future. 

Find out more about business loans from Moula. Also, check out our business loan calculator to get an estimate of principal and interest repayments for

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Business content for Australian SMEs. Sharing guides, growth hacks, and expert tips on finance, sales and marketing, and tech.

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