Definitions
Contents
How does Beauhurst define an SME?
We class a company as an SME when it meets the European Commission definition:
- The company has fewer than 250 employees
- And either:
- The company has an annual turnover less than €50m
- OR The company has a balance sheet total of less than €43m
If a company does not file its employee count or turnover, we assume these figures are below the above limits and therefore it is an SME.
The criteria above apply to companies that have no parent companies above them. Where a company has one or more parent companies above them, we cannot determine its SME status (as the figures for its corporate group as a whole may exceed the SME limits above) and its SME status will be marked as “Unknown”.
How do Beauhurst’s scaleup criteria differ from the OECD’s?
The most commonly accepted definition of ‘scaleup’ was created, and is maintained, by the OECD/Eurostat (European Union bodies) and was implemented officially on 11th March 2009. This definition initially only classed as ‘scaleups’ (which the OECD/Eurostat call ‘high-growth enterprises”) those with annualised average growth rate of at least 20% in either turnover or headcount over three accounting years. For more information on the definition, please see section 3.4 of Eurostat’s Business Demography Manual.
On 29th April 2014 the European Commission lowered that threshold from 20% to 10%. Please see section 1 of the document ‘Commission Implementing Regulation (EU) No 439/2014‘.
Throughout, there have been two prerequisites for companies to meet this definition:
- They must have 10 or more employees in the base year of calculation to avoid small company bias;
- Their growth would still have been at least 10% if we disregarded growth directly attributable to the acquisition of other companies.
For further information, please see section 3.4 of Eurostat’s Business Demography Manual and chapter 8, sections 8.1, 8.2, and 8.3, of the Eurostat-OECD Manual on Business Demography Statistics.
The Beauhurst definition of a ‘scaleup’ differs from the OECD/Eurostat definition of a ‘high-growth enterprise’ in the following ways:
- We separate scaleups into those that display 20%+ growth, and those that display 10% to <20% growth, rather than bundling together all companies with 10%+ growth. This is to enable our subscribers to 'zero in' on the kind of company they are interested in.
- We agree with the desire to try to avoid small company bias, but think 10 employees is too low for headcount scaleups, and that a minimum threshold for revenue scaleups is also advisable. Following internal work that involved sampling companies with various revenue and/or headcount figures, we have decided that 20 employees is a sensible minimum threshold for headcount scaleups, and £200k is a sensible minimum threshold for revenue scaleups.
- We think it is unprincipled to focus on organic growth to the detriment of growth by acquisition. Growing through acquiring other companies is a legitimate growth strategy – one often pursued by companies owned by financial investors. We think the OECD/Eurostat are primarily interested in organic growth because growth by acquisition effectively ‘moves’ headcount and revenue around from one company to another (at least in the short-term), and the OECD/Eurostat are primarily interested in the overall economic picture rather than the company-level picture. But Beauhurst is primarily focused on the company-level picture, and we believe getting this right is key to getting the overall economic picture right. Also, as a purely epistemic, pragmatic point, it is an extremely difficult (if not futile) exercise to estimate counterfactually what a company’s growth rate would have been had it not undertaken certain acquisition(s). So accepting growth by acquisition makes the calculation process more consistent, if nothing else!
There is also an additional point worth mentioning that, while not explicitly different between the Beauhurst and OECD/Eurostat definitions, does exist and causes differences.
The OECD/Eurostat high-growth enterprise definition was shared with EU member states so they could self-report their scaleup numbers. As far as we’re aware, there is no guidance on how to deal with companies some of whose accounts do not encompass perfect 12-month periods. We suspect this causes systematic under- and overreporting of scaleup numbers across member states. Underreporting can occur where a longer period is compared with a shorter period (e.g. comparing a 15-month accounting period in the base year with a 12-month period in the final year); overreporting can occur where a shorter period is compared with a longer period (e.g. comparing a 12-month accounting period in the base year with a 15-month period in the final year).
Our solution to deal with this problem is to artificially construct, via an algorithm, 12-month accounting periods whenever we come across accounting periods of differing lengths. The exact details on how we carry this out are proprietary, but as a very top-level explanation, we will lengthen periods shorter than 12 months through allocating revenue pro-rata from a preceding or subsequent accounting period; and we will shorten periods longer than 12 months through ‘slicing off’ revenue pro-rata and allocating it to a preceding or subsequent accounting period. After we carry out this ‘smoothing’ exercise, we then compare periods and ascertain whether the growth rate is sufficiently high for the company to be classed as a scaleup.
How are foundation and cessation dates set for a company?
A company’s founded date is based either on the date on which the initial incorporation filings were made, or when it started operating as a company.
A company’s cessation date is based on when its Companies House status changed to either “Company is dissolved” or “Converted / Closed”.
What is a Local Enterprise Partnership?
A Local Enterprise Partnership (LEP) is a partnership between local authorities and businesses that seek to foster enterprise and innovation in their local area in England. How do they do this? Essentially, Local Enterprise Partnerships act as coordinators within their regions, and seek to get all parties who play a part in local enterprise in a position to work together effectively and efficiently.
Sometimes, the areas LEPs represent correspond with counties, though some represent larger regions and some focus on smaller regions that cross official borders.
LEPs cover every Local Authority (LA) in England. Neighbouring LEPs can share LAs, in which case each LEP covers the entire LA.
It is possible for LEPs to overlap, and for a business to be in more than one LEP at the same time. These businesses will be tagged with more than one LEP in Beauhurst.