The main goal of the paper is to explore the process of digital transformation in SMEs, analyze the benefits and challenges of implementing digital technologies, and determine the impact of digital transformation on operational efficiency and competitiveness. The paper defines digital transformation as the extensive application of digital technologies that involves changes in business processes, organizational structures, and business models. SMEs are noted for their flexibility, innovation, and ability to quickly adapt to market changes, which gives them an advantage in the digital transformation process. However, SMEs in the Republic of Croatia are still lagging in the implementation of advanced digital technologies due to limited resources and lack of expertise. The empirical part of the thesis includes research conducted through a survey among students of the Faculty of Economics in Zagreb, aimed at analyzing their perceptions of the importance of digital transformation in SMEs. The results show that most respondents recognize the importance of digital transformation for business but also point out obstacles such as lack of financial resources, digital skills, and underdeveloped infrastructure. The conclusion of the thesis emphasizes that successful digital transformation requires a shift in organizational culture, investment in digital skills and technologies, and support from public institutions to enable SMEs to operate successfully in the digital age.