In the current environment, the SME sector allows only to maintain the economy afloat and there by make it more stable. However, despite the revival of SMEs business activity, too many negative factors hinder their development. The situation develops so that the interest of investors towards in the sphere of SMEs decreases. The main indicators showing the effectiveness of SMEs fall, and those that grow reflect the growth of corruption, instability, and the inadequacy of the business climate. Despite serious problems faced by entrepreneurs in Republic of Croatia, but they still have the opportunity to successfully develop in certain situations. The importance and role of small and medium enterprises in the Republic of Croatia may increase significantly in the near future. The thesis shows that there is a strong relationship between entrepreneurial leadership and the success of small and medium enterprises, and entrepreneurial leadership certainly contributes to the success of enterprises. The main goal of this thesis is to analyze the importance of small and medium enterprises in the economy and the need for their financial reporting in accordance with their financial capabilities presented through different forms of financing. In addition to the undeniable importance of SMEs for the national economy, SMEs also provide social and economic benefits to the regions in which they operate. The role of SMEs in certain areas is determined by creating a competitive environment, using local resources, increasing the attractiveness of a particular area, creating vacancies, maintaining positive relations in the local community and developing economic and social benefits.