Pre-contractual Due Diligence by Franchisees and Independent Small Business Buyers

The role of pre-commitment due diligence in small business has received little academic attention to date.This is of particular concern given the reported high rate of failure in small business that is often attributed to a lack of adequate pre-contractual assessment of the small business opportunity. Data collected from a sample of 610 current and former franchisees and independent small business owners in Australia was used to empirically examine relationships between due diligence effort, business performance, owner satisfaction and relationship health. The analysis reveals different patterns of behaviour between current and former franchisees and independent business owners. In particular, franchisees spend more time and commit greater effort than their independent counterparts when conducting due diligence. Implications for theory and practice are discussed.