Written bySmall and medium-sized enterprises (SMEs) are businesses that fall below size thresholds set by government agencies, regulators and lenders, usually measured by employee headcount or aggregated annual turnover.
Also known as: SME, SMEs, small business, small and medium enterprises
Key points
- SME status depends on purpose: the same business can be an SME for tax concessions but not for statistical reporting or a grant.
- The ABS bands businesses by headcount, while the ATO uses aggregated turnover to decide who qualifies for small business tax concessions.
- SMEs are often owner-operated or family-owned, with tighter cashflow and greater working capital sensitivity than large corporations.
- Limited security and a short trading history can constrain borrowing, so many SMEs manage risk with invoice finance and cash buffers.
How SMEs are defined
There is no single SME definition in Australia. Each body picks the measure that suits its purpose: employee headcount is the most common statistical measure, aggregated annual turnover drives tax concessions and many grants, and total assets or balance sheet size are used where capital intensity matters, such as credit assessment and manufacturing. Some sectors, such as agriculture and finance, use their own thresholds.
By ABS convention, a small business has 0 to 19 employees, a medium business 20 to 199 and a large business 200 or more. The ATO defines a small business entity by aggregated turnover, which sums annual turnover, the ordinary income earned in the ordinary course of business, of the entity plus its connected entities and affiliates. Overseas bands differ again: the EU and OECD use their own micro, small and medium bands, and the US uses industry-specific revenue standards.
Which Australian definition to use
Use the definition that matches what you are doing. The ABS is the reference for statistics and benchmarking, and the ATO sets the aggregated turnover thresholds for small business tax concessions. Treasury or the department running a grant sets that program's eligibility, and its rules can differ from the ABS and ATO measures. ASIC covers company registration, director obligations and disclosure rules, and the RBA publishes research on SME finance and credit conditions.
To check where your business sits, start with the purpose, then gather your employee headcount, aggregated turnover for the last 12 months, asset values if relevant, and your ABN, structure and registration documents. Keep payroll reports, BAS statements, profit and loss and balance sheets to evidence the numbers. If a definition affects a tax or legal outcome, consult an accountant.
Why SMEs matter and what they face
SMEs account for a large share of private-sector employment and the majority of registered businesses, and they drive regional activity, serve specialist markets and underpin many supply chains. They are common in retail, construction, professional services, hospitality, trades and healthcare practices. Capital-intensive sectors such as manufacturing and agriculture tend to have fewer but larger SMEs.
The risks are just as recurring. Limited security and a short trading history can constrain borrowing. Late payments, seasonality and invoice terms squeeze cash flow, and PAYG, BAS, superannuation and ASIC duties demand reliable systems. Support includes tax concessions and simplified reporting, government grants, business loans, overdrafts, asset finance and lines of credit from banks and specialist lenders, and advice from industry associations and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
Example
A family café with eight staff and modest turnover is a small enterprise under the ABS bands and most program rules. A regional trades business with 25 employees and a multi-vehicle fleet is medium by headcount, but whether it gets small business tax concessions depends on its aggregated turnover. A tech start-up with 30 staff and fast-growing revenue is also medium by headcount, may still qualify for innovation programs, and can change category quickly. The same firm can sit in different boxes depending on the metric used.
Not to be confused with
- Start-up
- a start-up is defined by its early stage rather than its size, and a high-growth start-up can outgrow SME thresholds quickly
Frequently asked questions
What does SME mean?
SME stands for small and medium-sized enterprise. It describes a business that sits below the size thresholds used by statistical agencies, tax authorities, grant administrators or lenders. In Australia the most common measures are employee headcount, used by the ABS, and aggregated annual turnover, used by the ATO for small business tax concessions.
How many employees makes a business an SME?
By ABS convention a small business has 0 to 19 employees and a medium business 20 to 199, with 200 or more counted as large. Those bands are for statistics. Tax concessions use aggregated turnover instead, and grant programs set their own rules, so check the agency or program that matters to you.
Which definition should I use to check grant eligibility?
Use the definition in the grant guidelines. If the guidelines do not give one, ask the grant administrator directly. Many grants rely on Treasury or departmental rules rather than ABS classifications, and some use industry codes or exclude certain sectors, so read the eligibility criteria before you spend time on an application.
How do I know if my business qualifies for small business tax concessions?
Check your aggregated turnover against the ATO's current thresholds. Aggregated turnover adds up annual turnover, the ordinary income earned in the ordinary course of business, for the entity plus its connected entities and affiliates, so calculate it the way the ATO rules require. Keep your BAS statements and financial statements as evidence, and ask your accountant if you are unsure where you sit.
Are start-ups considered SMEs?
Often, yes. Many start-ups are SMEs by both headcount and turnover. High-growth start-ups can outgrow those definitions quickly, though, and some qualify for innovation programs with their own eligibility rules, so a start-up's SME status can change quickly as the business grows.
Related terms
Sole trader
A sole trader is the simplest Australian business structure: one person owns and runs the business, keeps the profits, and is personally liable for its debts.
Read definitionCompany
A company is a separate legal entity, formed under the Corporations Act 2001, that can own property, borrow and be sued in its own name, independently of its shareholders.
Read definitionStart-up
A start-up is a new business built to find a repeatable, scalable business model under uncertainty, marked by innovation, growth intent and rapid testing rather than steady income.
Read definitionBusiness loan
A business loan is finance for business operations, capital expenditure or growth, repaid with interest, either over an agreed term or as a revolving limit you draw and repay.
Read definitionWorking capital
Working capital is the difference between a business's current assets and current liabilities: the measure of whether it has enough liquid resources to meet obligations due within 12 months.
Read definitionCash flow
Cash flow is the movement of money into and out of a business over a period; unlike profit, it tracks actual receipts and payments, so it measures liquidity.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.