Starting Your Own Tax Business - 5 Things To Consider Before Buying A Franchise

Buy in Pricing - Tax Franchises such as H&R Block, Jackson Hewitt, Instant Tax Service and Liberty all have substantial up front "franchise fees". These fees make it nearly impossible to enter the industry let alone the challenges they put on attaining profitability any time soon. These up front capital investments range anywhere from $20,000 to $80,000+. If you are in talks with several franchises be sure to ask when they project your new venture to be profitable. If they state in 5+ years, my suggestion is to run in the other direction. I am not sure what your financial situation is, but I find it hard to envision investing in anything that does not have the potential to have any return on investment until the 5th year of operation. Rules and Procedures - Franchises dictate hours of operation, office location, dress code, pricing, promotion, signage, etc. Franchise dealers will all tout these as positive aspects of choosing a franchise business model. I say the opposite. Tax preparation is a personal service business and these type of personal relationship services vary drastically in operation and appearance depending on the area, demographic and economic norms for your location. For instance nearly all franchise tax offices have territories that they will sell to you. It is hard to imagine that in the 20+ years that H&R Block has been in business that they have not already cherry picked the prime locations for the offices that are owned by corporate, or that other owners have not already had first pick over them. If you choose to go with a non-franchise tax office set up, you have the ability to pick and choose your own location. Many of the demographic information can even be obtained without their assistance, and I will provide that to you later in this article. Signage should be tailored to meet the need of each individual office and to target their customers. This is not possible when you marketing campaign is dictated from across the country by someone who has never seen your office, your neighborhood, your customers, or your competition! Royalty Payments and Fee Splits - If you are looking for assistance in starting your new tax preparation business you should know that there are going to be some variable costs associated with bringing in some help. Franchises typically charge a 20% royalty on your office's gross earnings, and potentially up to another 5%-10% for marketing royalties. Partnerships and other tax business set up options can provide a less painful fee structure that is not tied to gross revenue and can free up more income for profitability. Marketing - Tax franchises provide a "brand name" that is recognizable, or at least should be recognizable. The problem is that their companies and strategies are boiler plate and dictated by the corporate office for their general acceptability and effectiveness toward a generic segment of the market. You are a small business owner. Who better to know who and what your target market is than you? Franchised marketing efforts are not customizable to your office, area or target market. Independent solutions for starting your tax prep business provide you with the freedom to spend your marketing dollars the way you want, not the way dictated to you. Length of Commitment - Franchise contracts require typically a 5 year or longer commitment from their new offices, and many of them have a "non-compete" clause in their contracts that forbid you from doing anything in the tax preparation business for many years following that contract period. This "locking in" is one of the most limiting factors, along with the large initial investment necessary, to starting a tax prep business by buying a tax franchise. Keep yourself free; If you decide that the business is not for you, you should be able to get out!