Ethiopia was embroiled in spiraling & soaring ethnic and a state-based large-scale armed conflict that has continued for more than a year. Therefore, these studies were designed to explore the impact of this state based armed conflict on enterprises in Ethiopia. This study is the first to explore the short-run impact of armed conflict on firms’ performance and their perceptions of the business environment. We focus on the 2021 conflict between TPLF and Ethiopia EFDR Government and use the Business Environment and Enterprise Performance Survey data before and after this armed conflict. Researcher can exploit the variation in armed conflict exposure to identify these relationships. The difference-in-differences estimates suggest that despite the short duration, armed conflict had a significant and negative impact on income, sales and employment for at least a subset of firms. Perceptions of a few business environment obstacles were also affected, and necessarily negatively. The results suggest that young firms experienced a scarring effect, which could lead them to close down prematurely. Longer-term impacts of the conflict on firms’ performance and local economic development can therefore not be ruled out. Descriptive statistics results showed several challenges are facing MSMEs due to the current conflict which destroyed around 12.9%, major damage 36.5% of the MSME's in the country. The Enterprises were suffered 44.9%, 33.1%, 8.4% and 13.5% of Economic, Physical, Human and All type of damage/losses respectively. This study found that after the shock the enterprises reduce employment particularly temporary employees are fired out. The DID analysis results showed that in average 1.870 million birr losses each Enterprise and that negative income shocks reduce employments level by 4.528 in averages. The researchers exploit the current armed conflict as a negative shock to enterprises and economically & statistically significant impact. Moreover, the researcher recommended certain Strategies to boost and improve the role of Micro, Small and Medium Enterprises in the country's economic growth and development and avoiding the challenges.