LIBERTY TAX SERVICE Franchise Complaints
August 11, 2009
UnhappyFranchisee.com asked: Are LIBERTY TAX SERVICE Franchise Owners Happy? If you’re familiar
with the Liberty Tax franchise, please share a comment below.
Entrepreneur magazine has ranked the Liberty Tax Service franchise #3 behind McDonald’s & Subway. However, some commenters who claimed to be former Liberty Tax franchisees left stern warnings on the Franchise-chat forum.
BostonTax wrote:
I’m a former Liberty Tax Franchisee
I hope you are ready for a little enlightenment! I held a successful Liberty Tax Franchise for 5 years until I decided to let the franchise agreement lapse. I did this for a few reasons:
1. The royalty fees were outrageous! 14% went to normal royalty while and ADDITIONAL 5% went for so called advertising royalties. The ad royalties were supposed to be put back into your local market to build the brand name. This was never done! All advertising in addition to the ad royalty I had to pay for because it did not fit into Liberty’s concept of advertising. I don’t know exactly what the concept was because our AD could not give an answer and the approved methods changed by the week.
2. Corporate was totally unresponsive to the needs of the franchisees. The AD system is designed to recruit anyone who can write a check for 100K. No other skills or ability required.
3. The minute you are behind in a royalty payment, they send you a notice to cure. After that, if you don’tpay, they try to terminate your franchise agreement.
4. Upon termination, Liberty enforces through legal proceeding a 2 year, 25 mile radis non compete clause that is in the franchise agreement. This is enforceable in the Eastern Division of the Federal District court, where, at least 2 Liberty friendly judges preside.
5. Liberty does not recognize chargebacks for bad debts as an adjustment for your royalty fees. All royalties are based on your gross, not your net collectable. This was an ongoing issue with them and the accounting department did not have the ability or the inclination to resolve!
My best advice is do not go with these guys, they are bad news. If you like to have people collect royalties and provide no support, then this is the franchise for you! It is very expensive to get into, the initial fee is around $32K just to buy the territory plus those pesky royalties. You can’t make money on this concept.Most of the surviving franchisees I’ve talked to in the last 2 years have experienced great difficulty not only in making a profit, but in the corporate support or lack thereof.Remember, 19% of your gross is getting kicked back to Liberty, which is excessive by any standards. Please do yourself a favor and call former franchisees ,those that are currently getting sued (they are very likely to talk, as I found out), and current ones to try to get the straight poop.
Barbara Green wrote:
I too was a Liberty Tax Franchisee and I agree with everything you said.
The only reason for purchasing any franchise is because the business model is a proven marketing success as evidenced by the profitable franchisees. That is why you pay a license fee of $25,000. Being profitable is not in the cards for a Liberty Tax franchisee. Liberty Tax’s market/ business model is aimed at individuals who have very simple tax returns, i.e one W-2 and standard deduction which is why they were very successful in Norfolk, Va. That market is full of military people with one w-2.
Liberty will sell anyone a franchise at any location, in any georgraphic area, even if there is not a chance in hell of the franchisee being successful.
At one time, I too owned a Liberty Tax Franchise for one tax season. It was only one season because of the behavior of the Regional Manager who called me on January 15th demanding and screaming “Why had I not generated 200 tax returns and that maybe this business was not for me. I was stunned and confused since employers are given until January 31st. to give w-2’s to employees. Apparently, he thought that I was in Norfolk, Va. where that is possible.
It only goes downhill from there. The bottom line is I lost all of my investment in this businees (approx. $80,000) because I closed it rather than becoming a victim of this unethical company. NOthing would make me happier than to be a part of a class action lawsuit.
WHAT DO YOU THINK? DO YOU OR HAVE YOU OWNED A LIBERTY TAX SERVICE FRANCHISE? ARE LIBERTY TAX SERVICE FRANCHISEES HAPPY? WHY OR WHY NOT?
I am also a former Liberty Franchise owner. I would agree with everything in the other two messages and add, they missrepresented not only the number of tax returns I would do but vastly understated the cost involved in getting into one of their franchise’s. I tried to stick it out for four years but by then they had wiped out my life savings and there was no way I could continue. Rest assured they encouraged me to continue to throw my good money after bad right up untill the end. If any one gets a class action Law suit going against them please post it here, I personally know two other former owners that Liberty helped drive into bankruptcy in less then two years of doing business with them. The problem is none of us have the finacial resources to get one started.
[...] LIBERTY TAX SERVICES Franchise Complaints (1) [...]
I have to agree with a previous statement: Liberty will sell ANYONE a franchise……even a person who was CONVICTED of FRAUDELENT INVESTMENT SCHEMES…… I’m sitting with tons of unpaid fees now, and this loser is sitting in jail and most likely will never have to pay for what he did…..and even if he does have to pay, I’ll probably be so far down the totem pole, my grandkids will never see the money…….and I don’t even have KIDS old enough to have kids yet!
Agree all you want. You are stupid
Wow Bill what an intelligent response! Too bad for you I have the proof to back up what I say!
I thought about opening a Liberty office but after reading how much money it cost for a buy in and all the other start up costs, I thought it was easier to keep that money and continue to work for myself and use my own name. If anyone wants to know how to operate a tax office less expensive I can help.
all your comments are enlightening. Just returned from an open house and they made it seem simple…seems like you could save yourself operating expenses by doing it yourself….any insights taxlady
There is a case currently going through the courts that is challenging the Liberty Tax Franchise agreement. The guy who is being sued is a former Liberty franchisee and is willing to talk! He is in Springfield , MA and has had some success in beating Liberty. Most notably, his lawyer successfully argued a vast reduction in money damages due Liberty which could and should make any lawsuits in federal court too small for them to consider. His lawyer will be happy to accept more Liberty clients (of course!). Talk to this guy, he is listed as one of the current lawsuits on their prospectus. I won’t list his name here, but he is easy to find and has some success in litigation against Liberty. Good Luck! As a result of our conversation, I would not even think of being a franchisee. Call him-his name is John.
Thanks for the advice…in the process of doing my due diligence so I will be sure to talk to John…appreciate the insights
If you want info on the former franchisee that John Palmer referred to, contact me at biz.tax@hotmail.com and I have permission to provide you with his contact number! You will be asked if you are with Liberty Tax since they have been calling him to try to entrap him because of the current lawsuit. The information will be helpful and I only wish I had this resource before I lost my money to Liberty Tax!
Look for the case of JTH Tax vs. Fein
If someone will email a pdf of the complaint (in confidence) to unhappyfranchisee[at]gmail.com I’ll post it.
What is the current cost of purchasing a Liberty Territory? It seems to me they might be very expensive compared to others like Jackson Hewitt or Colbert Ball. Any body know?
To the taxlady:
I would like to take you up on your offer to provide insight into opening up a tax office for less than the franchisors offer.
I would like to be a part of a class action lawsuit. I also feel that they misrepresented the oppertunity. I bought 3 territories. Invested my life savings and filed for bankruptcy last year. I was lied to from the beginning.
Customer service did not exist from corporate to the franchisee
Anthony,
Please remember that your franchise agreement may preclude you from filing a class action suit against Liberty. If you e mail me I can give you the contact info of someone who is in current litigation with these crooks and has had some success.
[John: We don't allow posting of personal contact info or email addresses in comments. Feel free to share your information here in the forum. Thanks. ADMIN]
Anthony — I’m sorry you lost so much and had to go into bankruptcy but be sure and study the history of “class actions” and franchise litigation. Now that class actions are usually removed to the federal courts, franchisees will be even less successful than ever before in litigating misrepresentations and fraud.
Franchising was regulated my the federal government in late 1979 in order to take franchise contracts out from under the provisions of state law and to protect franchisors from “fraudulent inducement to contract” claims in the state courts according to Robert Purvin, an attorney, who wrote the book Franchise Fraud and who was Chairman of the American Association of Franchisees and Dealers (AAFD).
If a Class Action Attorney doesn’t explain this to you and tell you the odds, run fast! There is tension between state law and federal law and the courts are under siege by failed and failing franchisees who believe that they were defrauded by promises made in the presale process. Franchisee attorneys do not work on contingency, of course, because the odds of recovery are so slim —and the odds of being made “whole” as to your losses are practically “nil.”
Now and then a franchisee does get a small judgement if they can hang on through the years and the appeals, etc… but, of course, the attorneys don’t lose on either side and don’t take franchisee lawsuits on contingency. Notice that “the promises about “customer service” are probably not very specific in your written contract and the UFOC/FDD and breach of contract is very difficult to prove and even more difficult to prove was proximate to your damages, etc…
LET THE BUYER BEWARE OF FRANCHISORS AND ATTORNEYS!
http://thegreatfranchisingrobbery.blogspot.com/
This is very scary stuff!!! I am on the brink(or I was) of purchasing either a Liberty or Instant Tax franchise. After reading some the these responses I am truly becoming frightened of the whole franchise idea.
To Nancy Jones:
Save yourself money, effort and trouble. Don’t even think about getting involved with Liberty Tax. There is enough input here to help you with your decision ! Look up the list of former franchisees in the Northeast and you will find former franchisees that can give you an honest evaluation!
JP
I am pursuing the due diligence of being a Liberty Tax franchisee and came across this forum. Thank you all for sharing your experiences. The franchise seems to be very successful in my area ( Dallas) I attended the first seminar where other franchisee owners were there and claimed to be very happy. I have an existing client base to start from and have been in accounting for years but am not a CPA and need a year or two of more classes to get my CPA. With the Liberty Tax I wouldn’t need it and can make the same money. How could I do this without having a franchise? Thank you.
gried:
Talk to the former franchisees that ahve been listed in this forum. There are several that had pre existing clientele that were burned by Liberty. Did you know that Liberty would have the right to exclude you from servicing your old clients if you should decide to leave them? How would that affect the business you worked so hard to establish?
The short answer to your question is that there is a myriad of people out there that actually make a living setting up people like yourself for this type of business. Look in the Northeast, where I personnally know 3 of them! Liberty will not offer you an honest shortcut to expanding your business. the truth is that you hold the key to expanding your business through your own clients and their happy referals.
To Gried:
I am a former Franchisee with these less than honest people! Do not ever let them get a hold of your private client information because they will innundate them with advertising and try to lure them away to other Liberty Franchises in the area. They have no real marketing prowess and are really good at taking our royalty fees with no support. They developed a large group of franchisees here, in Florida, and not many are profitable and most are very disappointed with the lack of support they offer. Their software is unreliable, especially at tax time (when you need it).
To answer your question, you do not need a franchise to grow your business. You need to service your existing customers well so that they will give you referrals to their friends. There is no marketing magic bullet that Liberty offers that can possibly offer you the same degree of success as you can yourself.
As for the meeting you went to, I also attended on of those and was reeled in by them. It turned out that most of the franchisees were not at all from my area nor even from my part of the country! Most were from Virginia (where Corp HQ are) and were specifically shipped in for the show. The Liberty Franchise owners that you probably saw were new to the system or part of Liberty’s sick corporate structure. Do yourself a favor, call the ex franchisee’s, call the ones that are being sued by Liberty and call franchisee’s with more than 3 years in the system. I think you will get a better picture of what the Liberty Franchise is all about. Don’t let them separate you from your money-They managed to bankrupt me!
For any of you that are still even considering Liberty tax as a possibility, why don’t you do a little searching on justia.com which is a search site that lists legal cases that have been initiated by Liberty Tax. Search by typing in JTH Tax on the search screen and a whole list of defendants (ex franchisees) are listed. Ask any one of them hoe they would rate their experiences with Liberty!
I thought it interesting that this was a very large list that seems to keep the Eastern District Court of Norfolk, VA fully employed! Coincidence?…
The Liberty comments about losing all your money are accurate and not just disgruntled people who didn’t know what they were doing. I was sucked into buying franchisees and came out losing more than 200k after 3 years. Due to franchise laws Liberty can’t tell you before you buy how successful their franchisees are, because if they could you would never buy. The success stories at the pre-training sales pitches are corporate owned stores and maybe 1% of the population of franchisees (a dog and pony show). The other 99% will lose their money, have their franchise taken back, maybe get sued, and then Liberty will sell the franchise to someone else all over again.
run away wrote: …Due to franchise laws Liberty can’t tell you before you buy how successful their franchisees are, because if they could you would never buy.
They may have told you that, RU, but it’s not true that laws prohibit them from disclosing sales and profit numbers. Franchisors often state that they are prohibited, but actually they can provide financial performance data to prospects as long as they disclose it in Item 19 of the Franchise Disclosure Document. They must, however, provide the basis for their numbers.
Most franchisors, for various reasons, do not provide financial performance info in their FDD. One would assume that if it furthered the sale, they’d include it.
Ha! Ha! Run Away told the truth! I read the other day where Mr. Franchise says that 90% of franchisors DO NOT DISCLOSE “earnings claims” — and I say even “earnings claims” aren’t actually true disclosure of the unit financial performance of the systems because they may be averages that can be skewed.
What are the various reasons franchisors don’t disclose earnings claims, Sean? l. Because they don’t have to, under the FTC Franchise Rule or the State FDD, and this protects them from lawsuits from franchisees who don’t thrive and can’t then prove they were fraudulently induced to contract by misrepresentations or omissions, etc. in the forming of the contract. 2. Because if the disclosure reveals low or no profitability of units, this would kill the sale of the franchise. 3. Because even if the earnings claims were currently good, they might not remain good, and then it would sure look like “fraud” if the franchisor stopped making earnings claims to hide from new buyers the fact that the earnings were declining.
The original lie of the FTC Rule lives on — i.e. that the purpose of the FTC Rule was to mandate that “essential” information be disclosed by franchisors that would enable prospective buyers of franchises to assess the risk of the investment in the franchise and compare it with other investments. The real purpose of the FTC Rule, as indicated by experts and attorneys, is to protect the franchisors from fraud and to deny a “private right of action” for franchisees even when there is a violation of the FTC Rule.
http:..thegreatfranchisingrobbery.blogspot.com
Carol – see you next Tuesday.
John S.
Carol,
Is there a way to contact you?
Yes! John! You can E-mail Admin at unhappyFranchisee[at]gmail.com and tell him that you have my permission to access my Email address.
I don’t know how I could help you but I do feel that you are honestly trying to help the Liberty Tax franchisees who are failing and don’t know what to do when Liberty Tax demands a “failure” fee that is obscurely defined in the terms contained in the contract the franchisee has signed in good faith. The good faith franchisees don’t understand that the franchisor has premeditated their failure while at the same time they have not disclosed the odds of failure. Too bad! So sad! —So many have been had!
Here is the problem as I see it. Some Liberty franchisees make money and are happy with their business. Some fail for what ever reason, and they blame the company. I’ve never heard of one blaming themselves for their failure.
Now, Liberty does have a habit of treating its franchisees as if they are morons. That is frastrating to franchisees who are not morons. The company oversteps its authority under the franchise agreements in myriad ways. They litigate way too often, having sued so many of their franchisees and former franchisees. The list of failed franchisees is enormous. I don’t believe they intentionally lie, but one person claiming to speak for the corporate office will say one thing and then another person will not abide by that commitment leaving franchisees always wondering what they can depend on. They do many things that stupidly damage their relationships. However, as I said, some folks do well. If that was not the case then the company would not continue to grow.
The best advice for prospective purchasers of a franchise is to compare yourself honestly with those who succeed and those who fail. Are you more like one or the other? Personally, I would not purchase a Liberty franchise again because I know the tax industry now. If I move to another area I am perfectly capable of building a local mom and pop operation that would likely do better financially. If you don’t know anything about a business then you need to buy someone else’s system. Be prepared to be treated like you are stupid, and be prepared to act as if you are if you wish to be in the company’s good graces. Liberty doesn’t pay its corporate employees very well so they also don’t get the best and the brightest. The people who are highly compensated are the ones to watch out for, though.
By the way, I believe it is time for Liberty franchisees to consider forming a franchisee association to represent their interests similar to what Jackson Hewitt franchisees did. Right now all franchisees are at the mercy of the whims of the corporate office. They have no power because they are not organized, and the company will always place its own interests above that of franchisees.
Have to tell you, when there is a posting that says “the list of failed franchisees is enormous” it says alot. Obviously there will always be franchisees that fail due to their own workings, but when failure is more the norm than the exception, there is something wrong. I have run successfully a small business in the past, and followed the liberty system more so than a lot of other franchisees who I knew during the past few years. Part of the flaws are you purchase a franchise to rely up systems that work, an organizational structure you can rely upon, and a brand name recognition that will bring people in. Liberty advertises this to their potential franchisees, but in most cases does not deliver. I firmly believe after being involved that the successful franchisees are either lucky, or hand picked to succeed by the corporate office as they get better development assistance than others. The area developers, who are one of the keys to the store’s success, are in it to flip territories and not for the franchisees success.
Joey,
Liberty’s main business is litigation. That is where the largest number of their corporate employees are. There is a distinct reason why prospective franchisees are not invited to the corporate office: It is because it is such a small operation that is disproportionately driven by its legal department with John Hewitt at the helm.
I am a former Texas franchisee that has had litigation from Liberty against me. This is not at all an exclusive club. The reason for Liberty’s growth has been the fact that they prey upon the unemployed and will sell the sizzle instead of the steak. The company never gave a care about the franchisees-ever! Just ask former franchisees and litigants. the answer is the same. I believe that they will continue to dupe unsuspecting people into their very expensive system just so they can establish their brand at no cost to them and the sweat of others.
The AD’s are only in the business of flipping territories. When I left mine, I understand they sold it for six figures! I guess there are people that are still unsophisticated in spite of the fact that there is a lot more former franchisees out there sounding a warning. Buyer Beware!
As a Liberty franchisee with multiple offices for several years I have to agree with most of the negative comments listed above.
FACT: You CAN make money as a Liberty franchisee based on the following (and you MUST have four of the five criteria listed):
1. You have three times as much money as the start up fees state.
2. Your Area Developers understand the tax business (this is tricky). My AD’s are deceptive individuals who stack newly opened offices with free tax returns then sell them to buyers who are informed the “FREE tax return program” generates new paying customers the next season! Less than 10% of customers who paid zero return, and even then they expect their returns for $20-40! Part of the Liberty franchise agreement is that you MUST prepare 100+ free tax returns.
3. You have a business background – understand cash flow, budgeting, payroll management, purchasing, marketing to designated markets and excellent time management and people skills.
4. You can survive working sixty to seventy hours per week for 14 weeks during the first two tax seasons with little to no income.
5. You have an office with EXCELLENT visibility (Liberty generates more than 40-50% of it’s customers from their Liberty wavers), excellent staff prepared to work for minimum wage and $$$$ of direct mail, door hangers, coupons and roadside signs.
If you can handle all this… well, you’re a better man than I was.
Liberty will make you a “TOP GUN” a term they offer to virtually any franchisee who prepares over 500 returns AND is a suck up.
To these and others like them, they also offer the rent to buy or “try before you buy” program where Liberty allows the franchisee to open a second office with only 20% down. Followed by 12% interest on the balance. Not from the beginning of the tax season, but from the date the agreement is signed!
So you learn in January when you are opening your second territory office that you have been paying 12% interest on $32k or thereabouts since last AUGUST!
As far as the franchise agreement goes, have you or you wife or son or daughter sign it. So when you have spent your 14% franchise fee every month to a corporate body that does nothing to support you with the exception of commercially available software (Taxwise up to 3 years ago), and 5% advertising royalty which comes in the form of cookie tins, t-shirts in XL and XXL and hispanic radio marketing (my territories are predominantly all white/black!), sell for what is the higher part of pathetic and start your own no-name office.
Finally……. try selling your office for half of what you spent trying to build it up.
And to that poor uneducated, inarticulate, unschooled Liberty franchisee in GA who I spoke to numerous times trying to help…. I wish you well.
Liberty Tax should NEVER have taken his money. He has virtually lost everything.
Good to see franchisees sharing THEIR performance statistics with each other and warning off new buyers. As long as franchisors can hide the risk and the actual performance of units from new prospects, they will continue to line their own pockets at the expense of franchisees who lose everything. http://thegreatfranchisingrobbery.blogspot.com
The Internet will change the face of franchising for the better because HISTORY is repeating itself.
Thought I would share a quote from the Nov-Dec Franchise Times where Julie Bennett, in her article about the Minnie and Micky fiascoes in franchising said they were a part of a May 1970 front-page article in The Wall Street Journal that said: “Once considered the darling of Wall Street and the savior of the small businessman, franchising is spurned on Wall Street and cursed on Main Street.”
Carol –
The internet will immortalize your stupidity.
See you next Tuesday.
John Savitch
Who is this John Savitch? And what is this “See you next Tuesday.” Is this some kind of threat? Should I call the FBI?
Apparently, the “powers to be” are frightened that their “assets” (their franchisees) are talking together on the Internet about “encroachment” and “churning” and bad performance of the franchised business plan, etc.. because this will warn off new prospects.
“John Savitch”:
There aren’t a lot of restrictions on comments here other than no disclosure of personal contact in and no threatening language.
What DO you mean by “See you next Tuesday.”?
Please explain.
It does sound creepy and vaguely threatening.
Your comments are being held for review pending an explanation.
If there’s no explanation, I’ll make it a ban from future commenting.
ADMIN
I am not John Savitch but I know what the “See You Next Tuesday” comment means & it is a way to say a nasty word for a female body part …. John Savitch should be ashamed of himself for using such a vulgar term & he should be banned from posting on this forum in my opinion.
Savitch meant C U (N)ext (T)uesday.
Trace the IP address. Send it to me and I will find him.
And unless the comment at 1:47 is a cryptographer, that “may” also be “Savitch”
Boy that’s the last time I try to help…no I am NOT Savitch as I stated. I was just trying to help Carol. I thought what he said was disgusting. I have posted here before because Liberty ripped me off as well. I hope you DO trace the REAL Savitch & get him to stop posting such vulgar things. Sheesh!!!!
Admin -
Had no idea the phrase was so insulting, rest assured it won’t happen again.
Mea culpa
John
Moneypit/Unhappy Customer: Thanks for the explanation. FYI Moneypit is not Savitch, and the term has made the Urban Dictionary.
John Savitch: You are claiming that you were using an incredibly vulgar term but didn’t know what it meant? That, I believe, would make you either a 4th grade boy or a complete moron. In your words “The internet will immortalize your stupidity.”
The other option is that you insulted a grandmother in her 80s (sorry, Carol) with the most vulgar term possible because she dares to have an opposing opinion.
Mea culpa?
Go away.
Gee Sean! Telling my age again! Guess I will have to forgive Savitch. Maybe a little “sex” would help me get my message out there. I’m thinking about writing a book entitled “What do the Joy of Sex and the Joy of Franchising have in common?” — but, of course, the answer is too obvious.
http://thegreatfranchisingrobbery.blogspot.com
Carol: Sorry for the vulgar comment by John Savitch. He has been shown the door.
Maybe we can get the discussion back on topic now: The Liberty Tax franchise opportunity.
Moneypit has it right, for the most part. My experience based on Moneypit’s five criteria:
1. 100% correct-you need at least 3x start up fees.
2. Area developers in my opinion, are the downfall of most franchisees. they are not familiar with tax industry and make money off of churning your franchise. so if you succeed or fail, they still make money. My AD was useless and only took a stand for something when it benefited him. He has another full time job and preached what you were doing wrong instead of helping. i followed the system, took their advice and then was thrown to the curb when you can’t bring in the number of returns they want because the AD does nothing for your area.
3. A business background helps, but don’t rely on it thinking you can make it work with a strong business background. there are too many other forces as work where the business background won’t do the trick.
4. do not plan on making any money the first two to three years in this business. one of the successful owners i knew of lost $200,000 before making his first dime back. I didn’t believe it until I lost about the same but didn’t have the funds to continue.
5. Excellent visibility is key, but even with that, customers are more loyal to block and JH than you think. You know the old saying, nothing worthwhile is free. Those free and reduced price returns do nothing for you. if you are buying the franchise thinking the liberty name will bring people in, you are wrong.
If you still want to buy a franchise, don’t buy multiple units up front!! Don’t believe the sales pitch that someone else is ready to buy…they are not. Even if they do, you can most likely buy it from them next year after they lose all their money. If you are successful, there will always be an opportunity to purchase another unit after you have made money with the first one. In my opinion, one of the biggest reasons for complete failure is purchasing multiple units up front. You pay high interest on the loans from corporate, and then have to give them back for nothing when you can’t afford it anymore to avoid litigation from corporate.
The comments here from people who did not make it as Liberty franchisees are frankly over the top. I spent $70k on each of the offices I’ve started, and that was it. Why someone would expect to spend three times that is beyond me. People complaining about the royalty are particularly suspect. Jackson Hewitt charges more, and H&R Block charges its frachisees a whole lot more. Same for the ad fees. And this year, Liberty gave back half of the ad fees to the franchisees to spend on marketing materials. They paid for my yellow pages ad. They produce all the ad copy, graphics, etc.
But none of this was hidden when I signed the contract. It was all right there. And what franchise business doesn’t charge royalties and advertising fees? And interest on notes you’ve signed? Didn’t you read what you were signing? Again, it’s all there in the contracts you sign. Good grief, at least complain about legitimate things. Otherwise you end up looking worse than you’re trying to make Liberty look. You didn’t know what the interest structure was on your note, but you wanted to do peoples’ taxes?
Now, most people who fail as franchisees are people who are not suited to own their own business. And they could be identified up front, but Liberty will accept your money and sell you a territory if you can fog a mirror. They pretend theirs is an exclusive club and you’re lucky to be let in, but that’s a lot of hype. They have a large tax department to support franchisees, software development, technical support, operational support, marketing, etc. to the idea that most of the company is the legal department is ludicrous. I know their VP of legal and corporate counsel. It is not a big department, but yes, they are very willing and eager to litigate. You need to know that going in. That’s why it is important to talk to real franchisees, both current and former, successful and unsuccessful. I make good money as a Liberty franchisee, but I have had to learn what is real and what is BS. They leave me alone for the most part, which is all I want now that I understand the business.
Yes, the franchised business is harder to sell than Liberty would lead you to believe. Yes, buy one and run it for a year before buying multiple units. Yes, 12% is a very high price to pay for money. If you have to use Liberty’s 12% money you probably should not be going into business. Most financially sound people don’t have to pay 12% to borrow money. Yes, many of their Area Developers are useless and you just want them to stay out of your way but they are your only conduit to the corporate office for support sometimes. You have to deal with that. And yes, if you are profitable at all, just a little bit, in your 2nd tax season you’ve done very well. If you have to have profit to sustain yourself in tax season #2 this is not a business for you. These things are true. But there’s a lot in this thread that is not true for most Liberty franchisees. A lot of it is failure looking for something to blame.
[...] Here is Joey Black’s comment, posted on LIBERTY TAX SERVICE Franchise Complaints: [...]
Joey Black’s comment above has been upgraded to a full post. A lot of points here to be discussed & debated:
http://www.unhappyfranchisee.com/liberty-tax-services-unhappy-franchisees-need-a-reality-check/
Can someone tell me if this is true?
I heard that Liberty Tax has the right to revoke your franchise, keep your franchise fee and resell it to someone else if you do not achieve something like 1000 tax returns by your 3rd year in business?
Additonally, I was told that the majority of Liberty Tax franchises that have been open for 3 years or longer do not do 1000 returns per year, making the majority in violation of the agreement.
This sounds a bit far-fetched but maybe not. Anyone?
The number is 1000 returns and it is by the end of the fourth year, not the third.
It would be good to see other former or current zees confirming this.
Although there were 3002 offices in 2009 (62 company owned) in or so Liberty franchisees, many may still only be approaching their 2nd, 3rd or 4th tax seasons. So it is closer to 1700-2000 who have not achieved this 1000 returns number by the close of tax season four.
Although Liberty has the RIGHT to terminate the agreement, it is unlikely they would if the office is preparing 600 paid tax returns @ $200 whereby the franchisor still manages to receive ~$17,000 in franchisee fees.
It is more a threat to have more control of the franchisee who would after year four be required to “pull their head in” and toe the company line if they didn’t want this clause enforced against them.
I would like to see any other former or current zees post to confirm what is in their franchise agreement.
So if a Liberty franchisee is not doing 1000 returns by the end of the 4th year, Liberty has the right to pull their franchise – or not – and resell it at their own discretion?
Has anyone claimed that Liberty allowed defaulted franchisees to operate until they had a new franchisee for that market, then terminated them?
Can they legally exercise that clause in the contract if they don’t apply it consistently and diligently (allowing some to continue in default but not others?)
Why is 1000 returns the magic number? Is that breakeven for most offices?
There is much more involved but effectively yes. I have spoken with several franchisees across several states who actually handed their territories back as they could not afford to pay the franchise fees, could not afford to pay the off season rent (common issue), could not afford to open the second or third territories they purchased originally and are NOW required to open regardless of whether they can afford it or not, were unsuccessful in selling it or Liberty determined they were in default and the territory would be recovered in some way and resold. In one instance, the franchisee purchased three, handed two back, could not afford to continue in their original territory, was offered a position to manage it and then repurchase it (or something akin to this through financing but after another year the office had grown in volume and the zor increased the cost of the buyback due to the added return count).
Why is 1000 returns the magic number? Is that breakeven for most offices?
- Break even is dependent on several factors… Rent, Net fees, payroll and marketing expenses among others factors.
Eg.
Average office size: 800-1000 sqft
Average Rent/Utilities: $2000 per month
Employee Payroll (includes tax preparers and wavers) : $25,000-40,000 per tax season
Marketing Expense (Direct Mail etc..) : $5,000-10,000
Office expenses (printer cartidges, client envelopes, copy paper): $1,500
Total annual expenses: $76,000 (worst case)
$76,000 / 0.81 (after 19% royalties and advertising fees) = $94000 in net fees (after any discounts).
Assuming average net fee is $180 then $94,000 / $180 = 522 paid returns PLUS 100 required free prepared returns = 622 total returns.
There are other miscellaneous expenses which include but are not limited to: tax classes, newspaper ads for these classes, coffee, donuts, cookies, cups, new costumes, coloring books for play area, popcorn, pens, inhouse forms, travel/accommodation to meetings, which may amount to an additional $3000 or 20 more paid tax returns.
So 652 would generally be a safe break even total.
Now factor that you received no income during this time. And a new office preparing 652 returns would rank in the top 20 new offices in the country and yet you produced no income for yourself.
So the simple math is if you prepared an additional 348 paid returns at $180, deduct the 19% royalties and fees you would make $50,000 or thereabouts before business taxes and income tax.
1000 returns = 900 paid + 100 free returns.
Unfortunately, most franchisees don’t actually have net fees of $180. Some do, most do not.
If your net fee is $145, you require an additional 125 paid returns to arrive at the same place.
Getting $180 in year one is almost impossible unless you have a state and local tax return which increases the net fee. I would say that most offices take until their third or fourth years to read this amount or higher. This would mean the break even would not be met and the office would make a loss resulting in more financing or inability to continue.
Hopefully my math is close.
“moneypit” excellent comments and all accurate. In 2006, my expenses were were about $95,000 and in 2007 my expenses to run a liberty store were $98,000. I am in a high cost of living state, so maybe more than the average listed by moneypit, but on target.. First year store did less than 150 returns averaging $135 per return, which includes about 20 free. Alot of the $95,000 in expenses was for liberty advertising (remember, corporate doesn’t do it for you) and payroll, wavers etc. Funny as it may sound, I couldn’t give away free returns. Most people were suspicious of free returns because nothing is free. Second year got revenue up to $35,000, but with $98,000 in expenses, that’s $143,000 lost in 2 years. Add in the cost of the franchises (i purchased 3…don’t ever buy multiple units up front) and having to open another one….had to give it back to liberty so that they would “forgive” my debt. It’s not as easy as you think to get to 1,000 returns in 3 or 4 years. So “JoeyBlack” i don’t think it is over the top as you mentioned. You may be one of the lucky ones who did okay, but you are in the minority.
I’ll get back later but as a former Zee with five territories I totally agree with everything I have read. Stayed at JH’s house in V Beach and the snake oil was stacked 100 high. You cannot imagine the losses, lies, deception and garbage I was sold from LTS.
Boston Tax got it right. Liberty tax and Hewirr are predators in the first degree. Hewitt is the best used car salesman I ever saw. You can’t believe a thing he says and is clearly out to rip you off.
I was in his franchise for a couple of years and received no return on my investment nor any help from the corporation ar the area developer. I even had a successful operation in the sense that I was able to generate 630 returns by my third year. After Hewitt and his cronies got a hold of my franchise royaties, I had very little left to pay for such things as rent, electric, A/C and payroll.
My only comment here is to warn anyone that is even considering joining this group of clods, not to do it. Consult a lawyer, consult other franchise owners, especially those that are out of the franchise. Keep away from these clowns!
MoneyPit, wow you are pretty right on the money.
Because my business was new and seasonal no bank would approve a business loan for me (and yes I had really good credit at the time), so I did have to borrow money from Liberty not because I wasn’t credit worthy or a bad business person, unworthy of a loan but again the business was new and seasonal. In the end I took from my retirement and home equity to supplement what Liberty didn’t finance me (keep in mind Liberty didn’t approve or authorize me to pay myself a salary therefore I had to take some of my money to finance my salary)…
That I was able to hold on for so long on a shoe string budget and absolutely no cash flow is a testament to my commitment to make it work and my business and accounting background.
Again, despite my financial woes I was considered successful because I grew my office every year by huge percentage points, but being successful for Liberty is not how much profit you make but the number of returns you make. So I was successfully poor (I had growth but I couldn’t profit).
I tried for 4 years unsuccessfully to sell my territory and couldn’t because of their 1 1/2 times net revenue rule. Basically they tell you your franchise is only worth 1 1/2 times your net revenues. So if you do 600 returns less 100 free for a net 500 returns at an AVN of $180 your Net Revenue is $90k x 1.5 means you can sell for $135k, from that you have to subtract the money’s you owe them first, this leaves many Zee’s with zero money to recapture off their investment or in some cases still owing other creditors. Unfortunately most take from their home equity or their retirement funds so when they sell (out of desparation) or from need they are left starting their lives from scratch.
For anyone considering buying a Liberty Tax Franchise, keep in mind despite what some former and even existing franchisee’s tell you all is great in the land of Liberty, each Zee’s Franchisee Agreement states that if you are a franchisee or even a former franchisee you can not talk bad about them. If you do they can come after you and sue you, so most current and former zee’s will either not tell you the truth or avoid you completely.
Personally I have many greivances about Liberty, they made a lot of promises to me some personally by John Hewitt (which if I were to disclose here I would give myself away as to who and where I am). My advise to you is don’t trust anyone over there. It took me 4 years to figure out that the ones which preach how great and wonderful Liberty is the loudest and the fondest are the ones that either get paid by John Hewitt or are shareholders or are both.
Those which respond to this thread insulting other’s postings and comments are Liberty plants. John Hewitt and his minions really “hate” people talking or posting anything bad about Liberty; of course it doesn’t help them any to have bad publicity. The thing is the more people they screw over the more enemies they make and the more enemies they make the more people are willing to talk.
Finally, buyer beware. Don’t do it! They will make all kinds of promises to you and then break each and everyone one of them and then accuse you of being ungrateful or my personal favorite under performing or just a plain bad leader and manager.
Bankrupted is correct on all counts in my opinion (and of course, these are all my opinions in case “big brother” is watching as Bankrupted mentioned. Liberty is a marketing machine for itself as the franchisees are only there to make money for jth corp, the parent company of liberty, and not the franchise owners. take a look at the financial statements for the last 3 years for jth tax inc and subsidiaries, over 40 million in after tax profits on the backs of all the franchisees losing money. i agree that you would want to be involved with a franchisor who makes money, but the franchisees will never see it and the 40 million in profits is from all of us who went bankrupt or are paying off the loans for the next 10 years. liberty constantly takes back franchises that can never be successfull and then resells to another person. i have heard all the comments that former franchisees only lost money because they are bitter or didn’t know what they were doing. i’m sure there are a few out there who didn’t know what they were doing and bought the lines liberty sells that you can make 50 to 100k working only 3 months a year (what they don’t tell you is that probably means gross, not net after your expenses). however, like others on this thread, most of us are hard working, successful business owners who made a bad choice getting involved with liberty. Buyer beware is an understatement. If you like working hard for nothing and then losing your investment, then jump in. Its really unfortunate that this franchise is or was rated as a top franchise.
Almost bankrupted —We too avoided bankruptcy but are still subsidizing our franchisor with the payment on startup debt for a UPS Store that a stand-by franchisee got for pennies on our investment.
Wow! you say Liberty realized “over 40 million in after tax profits on the backs of all of the franchisees losing money.”
Can’t you see that this business model “franchising” is protected in the status quo of regulation and the law because it allows those on the top of the pyramid to maximize their profits while the franchisees on the bottom of the pyramid “buy the risk” when they buy the franchise.
How do you former franchise owners feel about the cost to your customers. My d-in-law went to a liberty, asked for an estimate, they said they couldn’t give her one, depended on how many forms, etc. (which I totally agree with) and when her simple taxes were done – they charged her $350 (gave her $50 cash back)…..I’ve been paying someone to do my taxes for over 30 years and NEVER paid more than $125 for all the necessary forms. Plus they wouldn’t give her her w-2’s etc. back until after her payment clears. I cannot believe they can charge her $350!!!!!!!! Do we have any recourse?
Liberty uses the “Closing the Sale” technique. DON’T drop your fees. Increase the service to meet your price. Pricing is discretionary. If the client is stupid.. charge more, discount less. That’s why Liberty targets AGI (Adjusted Gross Income) territories which are the lowest in the nation or $35k and under. Very much a sales oriented trick and the $50 Cash in a Flash gimmick is targeted at the lowest income earners in the nation who jump at the chance of walking out with $50 cash! when in fact many franchisees ADD $60 to the invoice. John Hewitt has little concern for HOH filers who get a $6000 refund (and need it) and don’t blink at a $350-400 fee. My average net fee was $200. John Hewitt is the lowest form of predator who also claims to be a “christian”. Oxymoron to say the least.
Honestly, owning a Liberty is a lot of work during tax season. It is probably better for a single person than someone married with kids. Truth be told, I’m a second year franchisee and I’m not that disappointed. The thing is, you really have to work hard, on season and networking off. Like any franchise outside of fast food, it requires lots and lots of work. It’s not easy. Picking up the right location and office is a big part. You are lucky to break even your first year. However,there are many success stories.
Most Liberty franchisees reach their point of disillusionment after their 3rd year.
All businesses require a lot of work, but Liberty, in particular, demands the same amount of work as if you were on your own without their help. It seems to me that if I am paying about 20% of my gross income to them, I should have a little less effort to make the business run. I’m paying them for their expertise to make my life easier, not harder.
As for location selection, Liberty really has no clue as to local needs or traffic flow. My AD not only did not know my area, his first trip to my state was to help me with site selection. This is not a real boost for my morale.
The point here is that if you are going to work hard, network in the off season, and generally do what it takes to run a business, why do you need them?
No business is worth it’s salt, if its not a full service business. I am glad to know that I choose the right tax franchise that allow expansion, and not just a popular named business.
What is this “Try it before you buy it” crap. They mean buy it so they can charge you 12% on the balance and then intercept your fees to pay themselves back. I’m down a $100K and trying to find a way to get out. They won’t even let me give it back to them unless I leave the system all together.
The “try it before you buy it “crap is that…just crap. Liberty wants to trap you even more financially so that you are literally their slave. It also shows that they are having difficulty selling territories and are trying to do an apparent discount. Don’t forget, you are still liable for the royalty fees anyway which includes their marketing fees. This includes the $5000 minimum for a first year territory. Yes, they intercept their fees first so you will have little to show for your effort. Some deal.
Even if you leave, they will most likely sue you.
Please READ VERY CAREFULLY (from Liberty Tax Intranet 2/22/2010):
“Are you ready to expand your Liberty franchise operation by purchasing an unopened territory? Would you like to finance up to 80% of the $40,000 franchise fee through a loan that is interest-free until January 2011, and make interest only payments for the first three years? Then take advantage of this unique offer to grow with Liberty, and secure your additional territories!
Expansion Special Details:
Completed paperwork and a 20% ($8,000) down payment must be sent to the National Office no later than March 31, 2010.
Liberty Tax Service will allow you to finance the remaining 80% of the purchase price over the following four year period by signing a promissory note.
o ***Interest will not begin to accrue until January 1, 2011***
o Make Interest only payments by February 20 in 2011, 2012, and 2013.
o Make the final payment (principle and interest) no later than February 20, 2014.
The Expansion Special is limited to the first 100 territories to close.
You must open an office in your new territory by January 8, 2011.
This offer is good through March 31, 2010.
Program is open to existing Franchisees in good standing.
Contact your Area Developer to start the process today!”
Upon signing an agreement in July, interest was charged from that time on the ENTIRE BALANCE. Even though the office was not opened until the following January and the first 20% was not due until the end of February, the interest of 12% was applied from the date the Spring Espansion Special agreement was signed.
Think how you feel paying 12% interest on $32k ($3840 interest per year for four years) from the day you signed an agreement (in this case the special is open to March 31st!) But you won’t find an office until October because you don’t want to pay rent unnecessarily)
John Hewitt and his cronies are bottom feeders preying on people desperate to own their own business and too deep in debt after their first tax season to be able to get out. God help them all.