LIBERTY TAX SERVICE Franchise Complaints
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.
This post was originally published
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?
.
Bebs;
This is something that will change your life forever. Please read all of the posts and realize these are real people and real stories of people who have lost $100’s of thousands of $$ to this organization. If that is your goal, you have come to the right place.
Yeah. Too risky. Mr. H was so convincing and I guess almost all of us there would jump into this business. But why were there people there defending him? Real people too. Franchisees from different states came and gave out their success stories. This could not be all failure, I think but the risk is just so high. Even without the franchise fees, you still need $20T to startup or higher. In the long run or for 5 years, paying 25% or more of royalties is crazy. Thanks for the feedback guys. I appreciate it. Great inputs.
Bebs,
Did you forewarn any other potential franchisees about the possible pitfalls? Did you tell them to check out this website? Glad you are making the right decision, 30% royalties is incredibly risky and glad we could help.
Bebs;
Congratulations on your decision. This organization has one huge goal, separate you from your money. Once they have it, all of those franchisees who became your friends will be impossible to find. So will John Hewitt. This organization is in huge trouble. From all indications, they are losing offices faster than they are gaining them. They need your money to survive and will do anything to get it. This is a money losing opportunity, and those of us who saw your story were disappointed as we all wish we had made the same decision you did. There will be another chapter for you to read about in the coming months. If you are still interested in starting a tax preparation office, I suggest you look into any one of several tax prep software offerings, and put an Uncle Sam’ed costumer out in front of your office. There are a ton of preparers on Craiglist with great experience. And guess what, NO FRANCHISE FEES. I wish that was the direction I took.
IF YOU ARE CONSIDERING BUYING A LIBERTY FRANCHISE-Call all offices in your city to find out how well they are doing. Ask them how long they have been in the “system” and do they regret it. The results will amaze you.
Here’s Liberty’s IPO application. Should bring some facts to the situation:
http://www.sec.gov/Archives/edgar/data/1528930/000104746911009158/a2205796zs-1a.htm
Dr.
Excellant, now the world can again review the falsehood.
Let me see, I am facing a declining market for my product, my franchisees are losing money, RAL’s which brought in a huge percentage of people have gone away, the IRS is returning refunds faster, Congress is looking at simplifying the tax code, there are places that do the same thing I provide for free to many of my same clients, I will be forced to hire IRS certified preparers that will most likely cause a smaller pool of available people and increase costs, brick and mortar is getting more expensive, and the list goes on and on.
Sounds kind of like a Bernie Madoff opportunity.
DON’T BUY A LIBERTY TAX SERVICE, if you are currently in the process STOP and call all the Liberty offices in your city! Get advice from the current franchisees around you, not the sales pros!
Thank you guys for sharing all this info. I was tempted to buy into this whole mess and you guys have saved me a lot hard work and heartache. Do you guys know what is or has happened with the SC class action lawsuit?
Just wait till you see MR REFUND come out with iW-2.com.
You will be able to e-file off your iPhone or call in everything to 1-800-MR-REFUND.
80% of all get REFUNDS.
TAX is dead.
You really don’t even have to talk to other franchisees in the area. Just do the math. Most offices do less than 400 returns which is break even point.
Revenue: 400@$200 per return= $80K
Royalty: $15,200
Rent: $24,000
Marketing: $15,000
Labor: $20,000
Utilities: $3000
Insurance, Taxes, Fees: $2000
Up to this point you have run up $79,200 in expenses.
Do I need to say more………………
F&D–YOU ROCK!!
Isn’t it totally obvious that this company does nothing but MISlead? Glad that we are helping others to see the light! ,
F&D,
If I was only doing 400 returns I could operate that office for $60,000 in expenses EASY.
Your labor number is about 5-10k to high and your marketing number is about 10k to high (and I’m assuming you are counting all wavers/marketing in with the 15k. You should be able to get 90% of coupons and marketing supplies from your 5% adv dollars so no expense there. I’d say 5k is about right for marketing wages for the season at 400 returns.
Everything else seems accurate enough. I’m not saying you can’t spend what you have listed but you better not if only doing 400 returns. But I agree 400 returns and you for sure aren’t getting rich. (Really need to do 450 to get 400 paid returns in all reality)
I haven’t checked the FDD in a while but as best I can remember avg first year store does right around 300 returns. That is average some higher some lower.
At 300 returns, if your rent is high and you are not willing to do a big chunk of the returns yourself (wout paying yourself wages) you will prob be in the hole a little.
No one said this was a guarantee and I would suspect as many fail as make it, but at the end of the day if you only do 300 returns you better find a way to operate low cost and you better have done a good job with the 300 you did so next year you can get to 400 and so on. IF you get discouraged and say I only did 300 and worked my tail off for nothing and slack up and stop giving good customer service etc. then you are finished. A decently ran office should show at a minimum 20% improvement from year 1-2 and 10% from year 2-3. It will take 5 years before you will be close to your potential (unless you change something of course to get more customers)
First of all the average fee is more like $230. If you are spending $15k in marketing and doing $60k something is wrong with your marketing. If you are doing $$60k in business no need for $20k of payroll. Basically your numbers sound like Herman Cain’s math…
how many offices do you have John? I am about to have 6 this tax season
I guess the whole making your money work for you wouldn’t apply here! I have always dreamed of spending a lot of money and working my tushy off for someone else. That is what it is all about, isn’t it?
I have 4 locations this tax season coming up…..
Well lets make all the money and let everyone else think about ways to drag everyone down. My best office does over 600 returns and my worse does just over 300 returns.
I spend very little time in the 300 office and basically cut costs to the bone. I do try to promote good visibility for that office and it has been improving marginaly every year. I have not given up on it yet and have until april 2013 (2 more tax sesons) left in lease. If it doesn’t get to at least 400 returns I’ll merge it with my other office in same territory. Rent is onyl 900/mo and I actually turn about 10-15k profit even from it so no big deal either way.
All in all I cleared into the 6 figures last year and expect more this year. So money can be made at this if you keep costs down and work really hard at least during peak.
good luck this year bud. My goal is 3500 returns out of all my offices this year.
DO NOT BUY A LIBERTY FRANCHISE ALMOST HALF OF ALL NEW OFFICES DON’T OPEN IN THEIR SECOND TAX SEASON!! T’hat’s like going to Vegas and betting on Black . It is not worth your gamble!
Ed and Barilla:
I know John Hewitt really appreciates your efforts. After all, the harder you work, the less he and the jokes has working for him have to. Just think of how great that extra 19% would be in your pocket rather than his. Let me see, 3500 returns at $230 per times 19% is $152,950 that you sent him to supply a software package you can purchase for $1200 per office. And don’t ever tell me that you get other benefits, remember, I am a franchisee too, and know that the Liberty name is basically worth nothing to most customers. It is your hard work that got you to where you are, and after five years and that number of returns, you would be over $750,000 richer. That is a lot of cash……………..
By all the new folks opting out on buying a Liberty it looks like the word about this organization is working.. keep on spreading the word to all current and former franchisees as well as potential zees about this website!! Great job EVERYONE, TELL THE TRUTH!!
Mike:
I think I made a friend the other day. Stopped in a new franchisee’s office that he is putting together. Said; you know in two years you will have lost most or all of your investment, you will be hoping someone buys this place just so you can get out from under. He looked at me somewhat strange, and I told him what JTH and others had not. Your first two to three years will be a bust, you will be lucky to come out even, and if you are lucky enough not to lose money, you will realize that this was a horrible investment. Told him to go out and ask the other franchisees how many returns they are doing. In this area, most are doing between 300-400 taking into account free returns, so they are seeing somewhere between 215 and 300. Not sure what happened after I left, but got a feeling he was sick to his stomach.
My whole point for being on this website is to provide potential franchisee’s with information they won’t get from JTH. Once someone buys a franchise I can only wish them the best.
For people who don’t believe what is being said on this website, Look at the franchise that is for sale in Westville NJ. It is a 4 year store and after 4 years it has a customer base of 300 returns. Don’t know how many are free. But this is typical of all franchisees. They go in with high expectations, usually have a first year that is in the 150 to 200 range, Have hope that the next season they will do better and end up having growth around 15 to 30%, and ever year after grow around 15% until they come to the realization that they can’t aford to keep losing money.
This business model is based on low income high populated urban areas and even then it’s not a sure thing. If you have tax knowledge invest in yourself, after all Liberty Tax does not do any advertising for you. If you don’t have tax knowledge then you don’t belong in a business with increasing regulation and a complex tax code.
Bill,
Excellant post! That store in Westville unfortunately is like 70% of all the offices. Liberty has been “around” in my city with multiple offices since 2004, there is not one franchised office that does over 400 returns! If someone is a potential new buyer and you are reading these comments, YOU SHOULD BE VERY NERVOUS, VISIT EVERY OFFICE IN YOUR CITY TO FIND THE TRUTH!!
I am in thr process of determining if I want a LTS Franchise. I cureently do 30 individual returns plus 50 or so Corps. They have a No franchise fee, 2500 deposit and high royality fee ?25%. What is the catch? Me? Benn in business 18 years
First post should read 300 individuals
Nick,
If you purchase a Liberty, you will get the opportunity to buy some costumes. You can make your own mascot to bring attention to your store/office. What will Liberty provide you that you aren’t doing?
You will have to sign a non-compete which means you will relinquish your rights to your clients. If you change your name to Liberty Tax Service you will likely see very little if any increase in clients. Are you willing to give up 30 cents on every dollar that your current client base brings you to have the ability to change your software, loose your independence and pay to do it? Don’t do it, SPEND THAT MONEY ON A MARKETING PLAN FOR YOUR CURRENT OFFICE! Most Liberty offices barely do 300 returns as is, don’t let them fool you. Call all offices in your city to get the TRUTH!!! Happy Thanksgiving. Glad to see you found this website are doing your due diligence.
Do you have low fees for the returns you have? Why do you want to open a franchise?
Quick question: if you all have had so many bad experiences as owners, why is Tax Liberty constantly ranked as one of the best franchises by magazines like Entrepreneur, etc?
For the record, i’m not attacking any of you; i’m just wondering why magazines as large as Entrepreneur would consistently rank them in the top 20 the past few years. Any responses would be appreciated!
To sell more magazines.
MR REFUND is the way to go.
No fees, FREE software.
John:
Entrepreneur is an advertising vehicle for franchisors, Just like Franchise Gator, FranchiseOpportunities.com etc.
If you look through their top franchise list you will see many that are the most maligned franchises on this site ranked near the top. Almost every janitorial franchise is a scam – recently the state of MA ruled they are not even a franchise, that their “franchisees” have so little control they are actually employees, but the top 25 are filled with these “commercial cleaning” franchises. Also ranked high are the UPS store which has had tons of franchisee litigation.
If you read the fine print of their selection process, they say they don’t take into account subjective considerations such as “franchisee satisfaction” or litigation. How can you rank a franchise but exclude how the franchisee’s feel about the company? And since when is the number of lawsuits against the company “subjective”?
For a quick answer, count up the full page color ads and compare to the rankings. Those ads cost, what, $30K or so apiece? Some are running a couple per issue.
There’s not a single award or ranking in the industry that is not somehow tied to franchisors paying something. If you want the truth about any franchise, talk to the franchisees – Something Entrepreneur won’t do.
Guest has absolutely nailed it. Magazines need to sell advertising to stay alive, and the more money Liberty spends, the higher the ranking. Liberty makes money selling franchises, there is not question about that. Similar to BBB, pay your money and you can advertise that you are BBB approved. Has nothing to do with how well you take care of your customers, it’s whether you pay the fee. It’s too bad that a magazine like Entrepreneur is so tainted, but I have been involved with magazine publishers before, and advertising is king. And also, since Liberty pays for ads, they will never criticize the fact that this is a poor investment. Most of the staff wouldn’t know a good franchise from a bad one other than what they are told by the franchisor.
So what is the answer?
It is the REFUND people. TAXES never get paid at a TAX office. REFUNDS are the products offered.
Just wait till you see how you can get your W2 delivered to your iPhone and filll out your 1040 with a tap and get your REFUND banged into the bank account.
Most folks just have a job and one w2.
MR REFUND knows REFUND$.
Bernie Madoff was a very highly rated financial guy too.
1-800-MR REFUND is the world’s best refunder.
Just so the Testipira’s and the John Barilla’s don’t come on here and gripe because they don’t like the truth being told about this franchise, I have had my territories for over two years. I have just had the fifth person who had shown interest tell me that they did their research, talked to other franchisees, and turned down the opportunity to buy a franchise for less than half the normal franchise fee with furniture and an available GM. If that doesn’t speak volumes, not sure what does. People are doing their research, and finding out on their own that this company is a really bad investment. Hewitt is a joke and really needs to move on.
I have been so excited about purchasing my own Liberty office for months now for some reason things kept being delayed I’m not even attending EOT until Next Thursday. I’ve spent the last 2hrs reading thru all these post absorbing all the pros and cons. I have been an employee (Office Manager) under 3 different franchisees with Liberty for 8 seasons I believe in the company or should I say believed in.I think I’ll be cancelling my travel planes
Kelsey:
Do not let anyone talk you into purchasing one of these POS. If you have interest in starting a tax business, take what you have learned and put it into practice and start your own. There is no way this franchise is worth $40,000 combined with a 19% royalty. After one season, you would realize that they are nothing but a bunch of parasites looking to rip you off for every dime they can, and provide nothing but headaches.
Kelsey,
F&D is absolutely correct, they will be your best friend up and until you sign on the line. What happened to those 3 franchisees and how many returns did your office do last season? Is Liberty attempting to sell you the office that you are managing or is this a new territory? Start your own business, EVERYTHING you need is on the IRS website, including training materials for your employees!! It’s easier than you think! When you get to EOT ask some of your fellow attendees how much research they have done and tell them about this website, please keep us informed on your decision. Good luck and don’t let the sales force at Liberty cloud your thinking. One last thing: How did you manage to find this site, did someone tell you about it?
Mike,
2 of them sold but were profitable just retired the 3rd is still in business and doing well. as an employee I have seen their success and thought it a good idea. I will be opening in a new area closest liberty is 20 miles away only 1 hrb in the area no jh high traffic volume area is fast growing my rent will run about $16,800 I have 4 investors lined up so it’s not just my money on the line, I have talked to other franchisees some successful some not some followed the plan others did not. After reading all the comments on here i am a little worried oh and a friend who doesn’t want to invest lead me to this site
Kelsey,
Thanks for your input. Are you purchasing under the Zero franchise fee promotion? Also, in this town how many PAID returns are there, and what percentage of these paid returns will you capture? This information will give you an idea of your potential market opportunity and cashflow in your first season. If there are X amount of paid returns done within a 2-3 mile radius of your new location you can forecast a reasonable amount of budgeted return opportunities. Ask your Area Developer what he/she thinks is a real expectation of paid returns this first season. Most new franchisees get an automatic budget of 600 returns ask your AD what yours will be and where /how and why they derived this number. Do this if nothing else, before you sign the agreement. Keep us posted.
Kelsey:
Do it yourself first. You have very little to lose. Put it as close to the Liberty’s as you can. You can always buy a franchise. Getting out of it is hell, especially if you owe money.
You might do quite well. Lower rent with no need to borrow. You know how to manage office. Could be a problem area if high income. High income areas have high volume of self prepared or HRB / CPA prepared returns.
Kelsey:
Liberty wants you to believe that any franchise that fails, fails because it didn’t follow the plan. Read this board most of the people followed the plan, the problem is the plan is nothing more then you pounding the pavement drumming up business or using your own cash to advertise to bring in business. Nothing other then the logo attached to the marketing material is supplied by Liberty. It’s all your hardwork and sweat.
Liberty tax is basically the same business model as Jackson Hewitt but without the national brand or tv advertising. Since the Liberty Tax Service franchise disclosure doc. in section 19 only showes the performace of only select stores I would not base my decision on there information. Instead if you looked at the Jackson Hewitt financials you can see that their 1st year store in 2009 averaged 205 returns and in 2010 averaged 166 returns. The average fee for all stores in both years was around $208.00. The average store after 7+ years in business did 558 returns in 2009 and 482 returns in 2010.
These are valid statistics and as an average this is what 1st year Liberty store can expect. Of course there will be exceptions on either end of a bell curve but must will fall in the middle.
If you are to average 205 returns your first year with an average net fee of $208.00 you will bring in $42,640.00. When you minus out your $16,800 in rent, $6000.00 marketing budget, your $2,132 (5%) in advertising and your $5,969.60 (14% royalty)
you will have $11,738.40 left over to pay your wages, supplies, utilities, telephone and yourself.
Instead if you use your own knowledge, open your own office in the same area that your in and eliminated Liberty tax you would have $19,840.00 to cover wages, supplies, utilities, telephone and to pay yourself.
Kelsey:
Without already having a location and an efin number I don’t think you will have enought time to open a store for this upcoming tax season. Its a hard enough struggle to be successful when you have enough time to prepare. Of course Liberty won’t tell you that. They will tell you to budget for 600 returns and put on way to much staff, but why would they care it’s not their money. In Ocean City NJ I watched the AD try to get them to open their store in late Jan. before they even got the software installed and an efin number. That’s not the kind of advice you need. Needless to say that store didn’t survice.
Kelsey:
There are two things that came to mind, 1) I would be willing to bet the financials you are seeing are not the actual numbers, desperate people do desperate things, and fudging is easy to do, 2) if there are no Blocks or Hewitt’s in the area, I would wonder how good the area really is. They both know a lot more about numbers than LT, and if they are not there, I would question the viability of the area. There is something that doesn’t fit, and I would hate for you to lose your investment and that of your friends. When this thing goes south, which it will, you will not only lose your investment, you will also lose your friends, and there is nothing worse than getting into money troubles with other people.
Great, Great advice on this website! IF ANYONE IS CONSIDERING BUYING A LIBERTY FRANCHISE DO YOUR HOMEWORK AND READ ALL OF THE POSTINGS ABOVE, AND CALL ALL YOUR OFFICES IN YOUR NEIGHBORHOOD, THE TRUTH MUST BE TOLD!!!
Kelsey:
How are you going to feel when you lose your investors’ money on a bad business venture ?
Look at how John Boy did good.
JH is now bankrupt.
Liberty folks are a cousin to JH.
No innovation just a copy.
1-800-Mr-Refund.com at least has a product: A LEGIT REFUND. and now IW-2.com where people will be able to photo their W-2s and get refunded without going to see anyone.
MR REFUND
Thanks for the info guys. With that resolved, have any of you heard of good franchises worth investing in?