The longman Business Dictionary defines SME as small and medium (-sized) enterprise; fairly small companies that are usually based in one place and owned by one person or small group of people.
The definitions of micro-business, small business, and medium business depend on the country and who is defining the terms. In Nigeria, Micro Small and Medium Enterprises (MSMEs) are generally referred to as enterprises with up to 250 employees.
Micro Enterprises: between 1 and 9 employees.
Small Enterprises: between 10 and 49 employees.
Medium Enterprises: between 50 and 249 employees.
Without a doubt small businesses are crucial to the economy and constitutes a major part of it. Though small in size, small and medium enterprises (SMEs) play an important role in the economy. They outnumber large firms considerably, employ vast numbers of people and are generally entrepreneurial in nature, helping to shape innovation.
Here are five (5) importance of small businesses:
1. Small businesses are important because they provide opportunities for entrepreneurs and create a sense of satisfaction, ownership and achievement than positions with larger, traditional companies.
2. According to the Nigerian Ministry of Industry, Trade and Investment, Small and medium-scale enterprises, MSMEs, account for more than 84 per cent jobs in the country. The ministry reports that the enterprises also account for about 48.5 per cent of the gross domestic product, GDP. This means that the SME sector contributes or affects the economy in a huge way. A vibrant small and medium-sized
enterprise sector is a vital ingredient for a healthy market economy. They are responsible for large contributions to value added and employment.
3. Small businesses are integral parts of local economies, helping to create webs of financial interdependence that foster broad-based prosperity. When you spend money at a privately owned local store, that money goes to pay a worker in your neighborhood, who, in turn, is likely to spend money at another neighborhood business. The more small businesses leverage their potential to support each other, the greater their capacity to create a thriving local business community.
4. SMEs are the starting point of development in an economy gearing towards industrialisation. Most of the current larger enterprises have their origin in small and medium enterprises. The extra growth over the past several years throughout the industrialised nations has been credited to the growth of SMEs.
5. Small businesses also provide a vehicle for reducing income disparities.