A failed franchise hurts the franchisor. Of course, if things don’t go well, the franchisee and the franchisor both lose money. The franchisor’s losses include money that was not recovered from initial training and supporting the franchisee, plus the loss of royalty fee that the franchisee unit failed to produce. A closed unit also reduces the amount of operating sum available to the franchisor to cover ongoing costs, and while it adds another unit to the franchisor’s sales inventory, it may impede the franchisor’s ability to sell franchises because prospective franchisees will become aware of the failure.
Franchisee Loses; Franchisee losses may be more than obvious which include all the money that you invested, including the franchise fee and all the start-up costs, such as payments to the landlord, professional advisors, and suppliers. And unfortunately, your losses may not end when you shut down your business.
Closing your unit may be a breach of the franchise agreement and may trigger the payment of liquidated damages. After taking the unit off the market and selling it to you, the franchisor expected you to succeed. Now that you’ve failed, and breached the contract, the franchisor may hold you responsible for ongoing fees, such as monthly royalties and advertising fees, and for royalties fees that were anticipated from your unit.
By selling the business—even at a discounted price—you may be able to curtail these obligations, but that, too, depends on the franchise agreement and, of course, the successful sale of the business. There may not be a market for your failed unit, even at a steep discount.