Starting Your Own Tax Prep Business:
5 Things to Consider Before Buying a Tax 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!
I would like to provide you with a Free Target Market Report that typically is only available to those
entrepreneurs looking to by a franchise tax office. I want you to know what the profitability potential of
your area looks like before you go into it. I can tell you how many tax returns were filed in your area.
How many of those returns were filed through a paid preparer such as yourself, what is the income level
in your area, etc. All of these are crucial pieces of info you should not be without. For more info on
starting your own tax prep business without the strings attached to buying a franchise visit