The purpose of the study was to analyse the perceptions that small business owner-managers held of graduates and graduate skills. The research focused on the tourism, hospitality and leisure sectors and used two methods, focus groups and a survey of firms in Surrey, UK. Firms employing less that ten people dominated the study, which coincides with the number of micro businesses in the UK business and sector profiles. The research highlighted some interesting results and perception gaps and this paper will present these results. Micro-business owners, for example, believed that their businesses were not appropriate for graduate employment and that they could not utilise graduate skills. As firms grew, however, their readiness to recruit graduates increased and owner-managers who had professional qualifications were also more likely to recruit graduates. The study indicated that smaller firms placed greater emphasis on the ability of the graduate to 'fit' within the business and findings suggested that SMEs expected graduates to be able to perform and contribute immediately, which differs somewhat from the requirements of larger firms. The results of the study will be drawn out in this paper because they impact on the way students in Higher and Further education are prepared for work.