While most people know that SME stands for Small Medium and Enterprise, there was no clear cut definition of SME or how a company, entrepreneur or a business organization can be classified into SME category. This posed confusion especially when an entrepreneur is looking to get assistance from the SME related bodies and financial institutions.

Different agencies and bodies used various different parameters in deciding if a business entity falls under the SME group e.g. sales turnover, number of full time employees, paid up capital and so on.

That, however changed in 2005, when the National SME Development Council announced the official and a standardized definition of SME. This definition is to used across various sectors, and adopted by the government ministries, agencies and financial institutions which are involved in the development program of the Small Medium and Enterprises (SMEs).

So what is SME?

The definition of of SME is based on two criteria, namely:

1. The number of people the business is employing, or

2. Annual sales turnover or revenue

Additionally, the definition is applicable for those companies operating in the Primary Agriculture, Manufacturing (including agro-based), Manufacturing-Related Services (MRS) and Services (including Information and Communication Technology).

In short, a business can be called an SME if it meets either one of the 2 criteria above, and is operating in the one of the sectors mentioned. And it’s not finished there. Within the SME itself, there are also terms that are used to describe if an SME is a Micro Enterprise, Small Enterprise or Medium Enterprise, and again this depends on the criteria outlined before.

If you’re starting to feel dizzy with the definition, the table below may make you feel a lot better:

1. Criteria based on the number of employees

Note: The Manufacturing includes the Agro-Based Manufacturing and MRS (Manufacturing Related Services), and the Services include ICT (Information and Communication Technology)

2. Criteria based on annual turnover

Note: The Manufacturing includes the Agro-Based Manufacturing and MRS (Manufacturing Related Services), and the Services include ICT (Information and Communication Technology)

To test your comprehension, answer the following.

A plastic manufacturing company employs 45 employees and has a yearly turnover of RM27 million. Is the company considered an SME? If it is, in what category of enterprise (Micro, Small or Medium) the business falls in?

Answer:

Yes. It is classified as SME. This is consistent with the general definition that says a manufacturing business is considered an SME if it has less than 150 employees OR has annual sales not exceeding RM25 million. The enterprise is classified as Small Enterprise. Even though the annual sales exceeds the RM25 million, the number of employees still falls within the range of SME, and to be exact, the Small Enterprise category.

So, you have fun learning SME today? It’s time to take a break. You can go out, have a teh tarik, or buy something as a reward spending your time for a precious lesson.

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