The franchisor provides the business expertise - marketing plans, management guidance, site location, training, etc. The franchisee pays an initial franchise fee, ongoing royalty fees, advertising fees and other fees to the franchisor. The franchisee must raise the money to start the franchise and must manage its day-to-day ongoing operation.

An important step in the small business startup process is deciding whether or not to go into business at all. Starting a new business can be risky. Most studies show that over 90 percent of new businesses fail within three years. On the other hand, starting a tax preparation business involves only a minimal risk because tax preparation businesses rarely fail. But remember that hard work, dedication, entrepreneurial spirit, and sacrifice are essential to the success of any business venture, including tax preparation.

Many people dream of being an entrepreneur. By purchasing a tax franchise you can often have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious - like any investment, purchasing a tax franchise is not a guarantee of success. Unfortunately, too many over-eager, first-time tax franchisees leap in without understanding the in's and out's. If the potential tax franchisee doesn't know what he's getting into, it may be years before he begins to see any return on his investment capital.

• costly start-up franchise fees
• royalty payments
• advertising fees that may not help your franchise at all
• issues with financing

• geographic restrictions
• issues with legal recourse should something go wrong
• losing your business due to unreasonable termination of your franchise agreement

• creative control - you get to do things your way
• no contract requirements - do you know what you'll be doing years from now?
• no problems with insufficient support from the franchisor

• reasonable costs for supplies - no franchisor mark-ups
• freedom from non-compete provisions should you want out of the franchise

In exchange for the right to use the tax franchisor's name and assistance, you may pay some or all of the following fees:

• Initial franchise fee and other expenses - your initial tax franchise fee may cost several thousand to several hundred thousand dollars ($25,000 - $250,000)
• Continuing royalty payments - you'll have to pay the tax franchisor royalties based on a percentage of your gross income (25% - 35% of gross income)
• Advertising fees - you may have to pay money into an advertising fund.

Additionally, tax franchisors typically control where franchisees conduct their tax preparation business. Restrictions on your geographical franchise area will limit your tax preparation business to a specific territory. While these territorial restrictions may ensure that other tax franchisees will not compete with you for the same customers, they also could impede your ability to open additional tax preparation offices or move to a more profitable location.

• What is the level of competition in your community?
• How many franchised and company-owned tax preparation offices does the franchisor have in your area?
• How many competing companies sell tax preparation in your area?

• Are these competing companies well established, with wide name recognition in your community?
• Do they offer the same service at the same or a lower price?

You will need to establish your own name. Your name will not be recognized nationally, but customers will be aware of your local ownership. In some cases this can be a big plus - especially if you have a positive, high profile, in the community. 

Should one office in the tax franchise network become tarnished, you could lose substantial business through no fault of your own.

You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used.

Tax franchisees rarely have any control over how the advertising dollars are spent. How much of the fund is spent on national advertising? Is any of the fund spent on advertising in your area? Do you need the tax franchisors consent to conduct your own local advertising?

As an independent tax preparation business you can select where and when the advertising budget is spent.

As a tax franchisee, you will generally receive valuable, ongoing business support, including site selection, training, marketing, new technology and more. Tax franchisors will assist you in developing a business plan, in learning the best ways to hire and manage personnel, and in how to profitably manage your tax preparation business.