Tax Franchises - Myths vs. Facts - Online Learning!
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Tax Franchises - Myths vs. Facts
Franchising has been around in one form or another since the beginning of commercial enterprises. A franchise is a legal and commercial business arrangement where the franchisor of a business concept grants the franchisee the licensed right to own and operate a business based on the franchisor's business concept, using its trademark.

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.

Here are just some of the reasons why starting your own tax preparation business makes better sense than buying into a tax franchise. Having your own tax preparation business means you'll avoid:
  • 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
Having your own tax preparation business means you'll enjoy:
  • 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
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Consider all the costs...
While buying a tax franchise may reduce your investment risk by enabling you to associate with an established company, it can be costly. You may also be required to relinquish significant control over your tax preparation business, while taking on contractual obligations with the tax franchisor.

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.

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What about the competition?
You should also consider the following: 
  • 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?
The facts about tax franchises...
If you are set on working for yourself in the tax preparation business, but are not sure whether you should attempt it on your own as an independent tax preparation business or buy a tax franchise, you should consider all the "pros and cons". The costs and differences of owning a tax franchise vs. building your own tax preparation business from the ground up are many. We've listed a few here that you should find interesting... 
Item Tax Franchises  Independent Tax Preparation Businesses
Name Recognition A primary reason for purchasing a tax  franchise is the right to associate with the tax franchise company's name. You will have the right to use an established trade name, trade marks, and logo. With an established tax franchise, you get the benefits of marketing an established brand. The more widely recognized the name, the more likely it will draw customers who know its services.  Because most taxpayers have their tax returns prepared by the most convenient tax preparer, usually within five miles of their home, national name recognition may be of little or no value.

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.

Known Service Your service will be known by the public. This is a benefit if the tax franchise network as a whole has a solid reputation, but is a drawback if other tax franchisees have bad reputations.  Ordinarily, it takes a long time to establish a service and build up public acceptance. However, most taxpayers are already familiar with tax preparation and the process.
Training Training is essential if you are changing careers or hiring tax preparer employees, by providing you and them with the ability to use technology, and you the skill required to operate a tax franchise.  WorldWideWeb Tax, Inc. offers extensive, online training. This can result in a shorter learning curve.
Established Track Record
As a tax franchisee you become part of a proven system of operation. You have history to learn from and to help you predict your own future. Your particular business will be unproven. However, WorldWideWeb Tax has thousands of successful software users coast to coast and we share our knowledge and experiences.
Advertising National advertising will be undertaken by the tax franchisor and generally, local advertising is up to you. 

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.

On-going Help & Support

You will have the benefit of a trouble shooting service from the tax franchisor when required. Field staff may also visit tax franchisees and help prevent the build-up of problems.

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.

WorldWideWeb Tax offers a full range of practice management and technical support programs.
Location The tax franchisor will come on-site and select, or advise you, on the location that is right for your tax franchise business. The tax franchisor may also assist directly in lease negotiations. You are free to make a good or bad choice of location. Best Bet: Locate your tax preparation business where there's a lot of drive-by traffic - as signage and banners will draw many taxpayers to your business. Office buildings perform terribly. Strip shopping centers perform fantastic.
Less Risk Your chances of failure are lower with a tax franchise operation, because of the experience, expertise and proven resources that support you in your tax preparation business. Tax franchises succeed at the rate of about 90%. Independent tax preparation businesses rarely fail. Without the financial burden of tax franchise costs and expenses, independents tax preparers succeed at a rate greater than 90%.
Ownership There may be limitations on your ability to sell or dispose of the tax franchise business. The tax franchisor may have rights to purchase and terminate your contract under terms defined in the tax franchise agreement. Ordinarily, you own the tax franchise business for a fixed period of time, with the right to renew. You own your tax preparation business. You are totally free to sell or dispose of the tax preparation business to anyone, at any time. No one else has the right to terminate the tax preparation business. 

Escape Clause/Cancellation
Depending on the tax franchise agreement, there may be major legal issues involved in a tax franchisee terminating the agreement.  Our software is purchased on an annual basis. While over 95% of our users renew each year, you are free not to do so. There is no long term obligation.
We build relationships that last a lifetime!
Consider becoming an independent tax preparer. Our system is a steal compared to the $25,000 to $250,000 that the national tax franchises charge. At WorldWideWeb Tax we don't just build a first class tax software program, we build relationships that last a lifetime!
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