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Cost Benefit Analysis for SMEs

Watching the ever-popular SME, or small-medium-sized enterprise grow throughout the EU market has never been easier. In terms of its strictest definition—which deals with the number of employees and end of year balance sheet totals for the enterprises—SMEs make up more than 90% of the total market. But, how effective are these enterprises in relation to their budgets?

Cost Benefit Analysis for an SME can seem complex; however, a few transparent factors can help one understand the benefits and challenges of the SME model.

Upping the Entrepreneurial Spirit (small group)

One great way SMEs serve the market is their seemingly endless supply of creative technology and the independence of their executives—both of which can help with cost effectiveness of the company. Because the entrepreneur is able to be a positive force among the employees, innovation and market leadership become more possible for SMEs. Working directly with a small or medium-sized group allows the entrepreneur to have more immediate influence, which can lead to higher earnings.

These owners of ideas are often the character behind the SME, or the driving motivator for the employees.  Keeping an entrepreneur at the center of the business creates a personal, client-based approach, which helps develop the brand. This personalization of the SME enables positive marketing appeals, as well as collaborative efforts with other leaders in neighboring industries. Easier access to the leader and an eagerness to work with other small businesses helps create a stronger brand—and market viability—for SMEs.

Necessity for Outsourcing

The same aspect of an SME that is a benefit also becomes a disadvantage, however. With limited enterprise size and smaller balance sheets, the disadvantage of an SME is its finite ability to produce. Essentially, because the truest nature of an SME is the minimalism in hiring practices—using the fewest employees for an efficacious task—the necessary cost of an SME structure is the lack of human capital. While a few well-suited employees can accomplish a great deal in the SME landscape, the lack of human resources can account for much of the disparity between SMEs and more globally driven enterprises.

Less Overhead for SMEs

Another upside to SMEs is the smaller overhead costs of sustaining the business. Relying on only necessary funds allows more of these enterprises to enter the marketplace at diverse sizes and with realistic budgets. Fewer employees, after all, means having fewer people to pay. By spending only what they absolutely need to and hiring only necessary workers, employers are able to increase their revenue by starting small and eliminating overhead cost.  The return on investment for SMEs is higher because the initial capital and start-up costs are limited.

Less Access to Financial Resources

While an advantageous and often exciting part of SMEs is their ability to rely on a lean, no frills budget, a drawback of this model is its lack of financial resources it creates. When compared to larger models, fewer opportunities and less potential growth might exist with this smaller budget.  The budget for an SME, while not necessarily indicative of success, can ultimately limit revenue, longevity, and overall success.

Alliances Formed through European SME Week

Throughout the EU economy, SMEs are a major stronghold in various sectors, making the SME community a great benefit to itself. By banding together to support complimentary legislation or just to network, SMEs are able to find greater success.

Events like European SME Week promote a strong and competitive market in the EU economy for these enterprises. By focusing on various similar experiences and shared clientele, SME Week enhances productivity for various industries by bringing small companies together to benefit one another. Essentially, through celebrating the community and financial independence of SMEs, the event makes the organizations more successful. This access to community is something that many larger companies don’t enjoy.

Less Elective Spending for SME Week/Events

While independent events are important to many SMEs, some lack the financial ability to partake in a meaningful way.  The efforts of smaller enterprises may be overshadowed by important day-to-day costs, as corporate events can be seen as leisure-time for businesses.

Morale boosting events and networking hubs, which help SMEs grow, are not always attainable with small budgets.  Keeping the local events in mind may limit the added expense, but the cost of participating in advertising is often too high for the SME funding.

Ultimately, the fact that 90% of the EU market is comprised of SMEs means that something works for this business model. While all business models have pros and cons, the cost-analysis of SMEs shows that this enterprise type is a viable option in the market.

Author Byline:
This guest post is contributed by Rebecca Gray, who writes for Backgroundchecks.org. She welcomes your comments at her email id: GrayRebecca14@gmail.com.

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