If you run a business or are thinking about starting one, you’ll probably come across the term “small business” quite a lot.

It sounds straightforward, but it’s not always clear what counts as small and what doesn’t.

The simple answer is this: a small business is usually defined by how many people it employs and how much money it makes each year. But the exact details of that definition can vary depending on who you ask and why it matters.

Here’s how to make sense of it.

How a small business is usually defined

In the UK, a small business is typically one that:

• Has fewer than 50 employees
• Has a yearly turnover of £10 million or less

These are the definitions often used by the government and regulators.

You might also hear the term SME, which stands for small and medium-sized enterprise. This is a broader category that includes:

• Small businesses
• Medium-sized businesses (up to 250 employees)

So if someone refers to SMEs, they’re talking about a wider group, not just small businesses.

Why the definition matters

You might be wondering why any of this matters in the first place.

In practice, being classed as a small business can affect things like:

Access to funding

Some loans, grants and support schemes are only available to small businesses.

Regulations and reporting

Smaller businesses often have simpler reporting requirements than larger companies.

Support and advice

Certain programmes and services are designed specifically for small businesses.

So while the label itself isn’t something you need to worry about day to day, it can affect what’s available to you.

It’s not just about numbers

Even though employee count and turnover are the official measures, they don’t tell the whole story.

A small business is often also defined by how it operates.

For example, many small businesses:

• Have a small team or are run by one person
• Make decisions quickly without lots of layers
• Work closely with their customers
• Manage cash flow carefully

In other words, it’s as much about how the business feels as it is about the numbers.

Small business vs sole trader

It’s easy to mix these up, but they’re not the same thing.

A sole trader is a legal structure. It means one person owns and runs the business.

A small business is a size category. A sole trader can be a small business, but so can a limited company with a team of employees.

So you can be both a sole trader and a small business at the same time, but they describe different things.

Does your business need to fit the definition?

Not really.

Most of the time, you don’t need to worry about whether you officially count as a small business. The definition is mainly used for things like funding, policy and reporting.

What matters more is understanding your business, how it runs and what support is available to you.

If you’re applying for something where the definition matters, it will usually be clearly explained.