This research analyzes the role of teamwork in the development and innovation of small and medium enterprises in Serbia. Correlation and regression analysis showed that aspects of teamwork, such as the frequency of sharing ideas, feeling comfortable when expressing opinions, participating in brainstorming sessions and evaluation processes of new ideas, are significantly related to the development and innovation of the company. The importance of the process of evaluation and implementation of new ideas, as well as cross-functional cooperation and encouragement of risk-taking, is particularly emphasized. The results suggest that fostering an environment that supports open communication, collaboration and innovation can improve the success and competitiveness of small and medium-sized enterprises. The research confirms the hypothesis that efficient teamwork significantly contributes to development and innovation, and recommends entrepreneurs to adopt practices that encourage quality teamwork as a strategy for sustainable growth and market success.