Who likes income taxes? Tax preparation services, that's who! Entrepreneurs who have successfully used the franchising business model to spread their brand across the globe are enjoying unprecedented success and expansion in 2006.
Four franchisors-H&R Block, Jackson Hewitt Tax Service, Liberty Tax Service, and Fiducial-account for a total of 3,255 franchisees in the U.S., according to franchise research firm FRANdata. Many are multi-unit franchisees, driving the numbers of tax preparation offices much higher.
H&R Block, the big kid on the tax preparers' block, operates more than 10,000 retail tax offices in the U.S., plus more than 1,000 in Canada, Australia, and the U.K.-and reported total revenues of $4.4 billion in fiscal year 2005. The company, pioneered by brothers Henry and Richard Bloch as a bookkeeping business in Kansas City, Mo., built its reputation exclusively as tax preparers. But in 2000, H&R Block spread its wings by adding financial services that include brokerage services, annuities, mutual funds, and IRAs in about 100 U.S. offices. And in 2005, the company began what it called the largest expansion effort in its history-opening the doors for new franchisees to take advantage of its 50-plus years of success.
Jackson Hewitt Tax Service was founded in 1982, when John Hewitt and an investor group bought the six-unit Mel Jackson's Tax Service. The company, which began franchising in 1986, today has more than 5,400 units in the U.S., plus more than 600 company-owned stores, making it the country's #2 tax preparation service-thanks to an aggressive growth strategy that nearly doubled its numbers over the past five years. In January 2006, Entrepreneur magazine ranked Jackson Hewitt the #1 tax preparation franchise and fifth best U.S. franchise overall. The company strongly emphasizes training, development, and support of its franchisees.
Liberty Tax Service is next in line in terms of size, with more than 2,000 units in the U.S. and Canada. Liberty is the second tax preparation company founded by John Hewitt, another industry pioneer. Hewitt began with H&R Block in 1969 and in 1981 was the brand's youngest regional director. During this period, the company more than doubled in size from 4,349 to 9,076 units. Next, as founder and CEO of Jackson Hewitt Tax Service in 1982, he grew the brand to 1,340 locations and took it public in 1994. He resigned in 1996, and in 1997 Cendant Corp. acquired the company for $483 million. That same year, Hewitt, bound by a two-year noncompete agreement, bought the 126-unit Canadian tax preparation company U&R Tax Depot. In 1998, the company changed its name to Liberty Tax Service and opened 5 offices in the U.S., beginning a rapid expansion to its current 2,000-plus units. In February 2006, the International Franchise Association (IFA) named Hewitt its Entrepreneur of the Year.
Fiducial, with 380 offices in the U.S. and 1,200 worldwide, is a diversified French company founded in 1970 that entered the U.S. in 1999 by acquiring Triple Check, an accounting and tax franchise company. Fiducial, which offers accounting, payroll, and financial services in addition to its tax preparation services, is the 25th largest accounting firm in the U.S. and the 13th largest in the world, with annual revenues exceeding $1.2 billion. As for opportunity, Fiducial describes the potential market in the U.S. as 120 million individuals and 20 million small businesses.
For anyone considering the opportunities abounding as a tax preparation franchisee note that beyond the relatively affordable startup costs, being a tax guy does not need to be boring. Just ask Dan Roman, an enthusiastic Liberty Tax franchisee based in Detroit. “You might not expect this of a CPA turned tax man, but I love marketing,” says Roman. His marketing activities include dressing up as the Statue of Liberty, End-of-Tax-Season Slumber Parties (24-hour service from April 14th until midnight of April 15th), and roadside parties for worthy causes like Cell Phones for Soldiers. In 2005, Roman provided 14,000 foam Statue of Liberty crowns with his phone number and 14,000 pairs of “3D fireworks” glasses to people lining the streets for Detroit's International Freedom Fireworks Festival. The results of all this show: in his first year, with 10 stores, Roman's revenues were $572,000; in his third year, with 38 stores, revenues climbed to $2.4 million. Now that's entertainment!