SME status check

For participation in certain Horizon Europe projects, companies may be required to demonstrate that they qualify as small and medium-sized enterprises (SME) under the definition set out in EC Recommendation 2003/361/EC. 

Verifying SME status is therefore a key step in the validation process during the Grant Agreement Preparation phase. Because the assessment often involves reviewing company structure, financial data, and ownership information, the process can require several rounds of communication with the Central Validation Service (CVS). Preparing the necessary documentation in advance can help avoid delays and ensure a smoother validation experience.

What if your company has no turnover or no closed accounts yet?

One of the most common questions raised by start-ups and newly established companies concerns SME status validation in situations where the company has not yet generated turnover or has not even closed its first financial accounts.

According to Article 2 of the EC Recommendation 2003/361/EC, to qualify as an SME an enterprise must employ fewer than 250 persons and have an annual turnover not exceeding EUR 50 million and/or an annual balance sheet not exceeding EUR 43 million. In principle, the staff headcount and financial data used for the SME assessment are based on the company’s latest approved and closed financial accounts (Article 4).

However, many innovative companies applying for Horizon Europe funding are still in an early development stage. This raises an important question: how does the CVS assess the above thresholds when no financial history exists yet?

• Newly established companies without closed accounts

For newly created enterprises whose accounts have not yet been approved and closed, the data is based on a bona fide estimate made in the course of the financial year.

In practice the company must submit a declaration that includes such a bona fide estimate, in the form of a business plan containing realistic financial projections. The business plan should include the profit-and-loss account, projected balance sheet and expected headcount of the company, together with a narrative part describing the core activity of the company and its expected market position.

Importantly, this business plan should cover the financial years until the company is expected to begin generating turnover.  The document should be dated and signed by a person legally authorised to represent the company.

• Companies with closed accounts but no turnover yet

Another common scenario involves companies that already have closed financial accounts but have not yet generated turnover due to a long development or time-to-market phase, something frequently seen in deep-tech, biotech, or R&D sectors.

In this situation, the company is required to submit a declaration of the investment made and the likely expected return, again in the form of a business plan. The objective is to demonstrate that despite the lack of commercial revenues, the company is engaged in an economic activity and hence qualifies as an enterprise.

The minimum requirements for the business plan are the same as outlined above. A key point is that the business plan should clearly indicate when the company expects to generate turnover from sales or services and the anticipated amount of that turnover.

Quick pro tip: in some cases, such a business plan can be easily derived from your submitted proposal.

If you are interested in learning more about the SME status verification procedures and what to expect during the validation process, check our blog article: Verification of SME status in the EIC Accelerator or just get in touch: [email protected]