Tax Franchise Versus Tax Prep Partnership

Income tax preparation businesses have been growing in appeal for startup entrepreneurs for some time now, and with the current changes in the industry, this might be the best time ever to consider this type of business venture.

Tax Preparation Franchises seem to be popping up in just about every corner strip center across the country. Whether you live in a high population urban center or in a rural town, there is a common denominator, and that is "Everyone has to file taxes." Wealthy and poor individuals all equally have to file tax returns before April 15th each year, and a disproportionately large portion of the population look to the assistance of paid preparers for assistance in this endeavor. The question surrounding whether or not to go into the tax preparation business is not whether there is a public demand for the service, but what is the best way to get your new business up to speed in the shortest amount of time possible. This is where the option of buying a franchise or income tax business partnership becomes the decision that will shape the way your new tax office operates, and the financial requirements you will need to move forward.

Tax Franchises typically require a significant initial capital investment, but provide more structure and brand recognition. The cash required for a franchise start-up varies depending on the franchise you choose, but typically varies from $35,000 to $100,000. Most franchises are very particular as to your business operations such as selection of office space, hours of operation, hiring and training of employees, year-round office leases, allowed marketing campaigns and promotions, etc. Franchises also require that you contribute a percentage of your gross revenue back to the corporate franchise. This percentage ranges anywhere from 20% to 35%. This fee is known as a marketing fee or franchise royalty fees. These fees are very important to factor in when doing analysis and comparing the franchise option to other methods of getting your tax business started, as splitting up your gross revenue has a considerable impact on your businesses break even capabilities.

Tax Prep Partnership options are another option for tax business start-ups. These partnerships generally offer considerably cheaper initial capital requirements versus franchise options. Partnerships allow for you to start a tax business for $500 to $5,000. Partnerships provide tax software, tax preparation training, office operational models, tax and technical support, and marketing programs. Most of these services are very comparable to what franchises offer, but what you do not get is the national brand awareness. For the tax preparation industry, it seems that the trend is moving away from franchising and toward partnering. This is due to several factors. Tax preparation is a personal transaction or service. The personal information that must be shared for the service to be completed properly promotes a more personal relationship with the tax preparer. Personal services are not like selling a commodity; the consumer looks more at the level and competency of the tax preparer as opposed to simply the name on the door. Tax prep partnerships also lend themselves to providing tax business owners with a considerably faster break even and profitability in the first year of operation.

When starting a tax prep office you should consider both options available.