The Impact of Digital Transformation on Financial Performance of Small and Medium Enterprises

Abstract

This study examines the impact of digital transformation on the financial performance of small and medium enterprises (SMEs), considering the increasing role of digital technologies in enhancing business competitiveness. Many SMEs face challenges in adopting digital tools due to limited resources and capabilities, making it essential to evaluate their actual financial benefits. The objective of this research is to analyze how digital transformation influences profitability, revenue growth, and cost efficiency among SMEs. A quantitative research approach was employed using survey data collected from SMEs across various sectors, analyzed through multiple regression techniques. The results indicate that digital transformation has a positive and significant effect on financial performance, particularly in improving operational efficiency and market reach. SMEs that effectively integrate digital technologies demonstrate higher profitability and stronger financial resilience compared to those with low digital adoption. The study concludes that digital transformation is a critical strategic investment for SMEs to sustain growth in competitive markets. This research contributes to the literature by providing empirical evidence from developing economies and offers practical insights for policymakers and SME owners in formulating digital adoption strategies.