UnhappyFranchisee.com asked: Are LIBERTY TAX SERVICE Franchise Owners Happy? If you’re familiar
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?
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View Comments
John:
I don't doubt your wife is probably a good lawyer, and in reading the contract, she looked at it from a lawyer's point of view. I want her to go back and reread it from a business owner perspective. According to your contract, if you owe money to LT, you are charged 1.5% per month compounded which equates to a little less than 30% annually. If you owe money to LT, your fees are confiscated from your RAL and RT's leaving you no cash flow. If you die and your wife cannot sell your franchises, LT takes them due to non-performance, your wife will still have to pay any owed monies even though she doesn't have the franchises. Your contract states that you have signed a personal guarantee for the money even if your corporation fails. If you purchase a franchise through LT, you pay 12% interest, again, your payments are confiscated from day 1 of your season until the debt is paid off, leaving you no cash flow. There is no requirement that they offer any assistance in site selection at all, but you are required to only move into an approved location. There is no requirement on LT's part that they supply anything but software for you to do taxes with. All that assistance you heard about at the initial meet and greet are just that, great ideas with nothing behind it. Just some thoughts for you to ponder.
F&D:
Every thing you said sounds correct, I haven't double checked but it sounds right and I agree with the above for this conversation. In-fact my wife said she was going to print out a "post nup" LOL if I went a head with it! So anyway I signed the above paperwork. She was joking..... I think? Personally, with an attorney wife, I have absolute no excuse to complain. I signed it, my attorney looked it over, done! A deal is a deal, that's the way I was raised. As an American my signature is law.
12% interest is a little excessive but personally I would not ask for that kind of loan. Same thing happens to me when I go to buy a used car, we start talking about financing and I ask about the cash price, big big difference. I mean that's why I'm buying used right? I can finance something new but that is possibly the dumbest investment possible, except maybe lottery tickets LOL. By the way, I will never win the lottery. I also don't do title loans and/or pay-day loans LOL. Just making a point.
Crossing fingers I don't die. Hopefully, when I sell, the business will be worth more than I paid...... at least that's the plan.
I will keep everyone updated with my stores progress, I have nothing to hide. I might not be so mouthy if I start losing money? Update: Today zero returns but I worked on 5 rejects and was able to get $1000 out of that.
It was money I should of made but the staff sort of messed up. Good day over all. I have 377 returns done so far. Last years total was 302, so I'm way up from last year and haven't got to April yet. I ordered "50% off" signs, I will cut prices to get the customers in for the last two weeks of March. Staff is there anyway, might as well keep them busy and warmed up for the last quarter (April).
Based on your numbers you should pass 400 returns. 400 paid returns at 180 net fee is about the break-even point for most Liberty offices.
400 x 180 = 72,000, royalties of $13,680 and rent of $25,000 leaves you $33,320 to cover wages, utilities, supplies, merchantile license, donuts etc.
With rent of $25,000 I can see why the guy wanted out hopefully you didn't sign a long term lease.
Bill:
Based on 400 returns, John should be able to feed his family on his "Executive" income quite well. Like most Liberty promises (what most other's except for the kool-aid crowd would consider lies), he will find out why the former owner was willing to give his franchise away.
John, we love you like a brother, but we have all been down your road before. First year, great, we have customers coming in, wavers in front, B2B out giving away donuts, life is good. At the end of the season when we start calculating our winnings and losings, we realize it was not a very good year, but hey, it was the first. The next year we spend more on wavers, B2B, etc. thinking we are going to set the world on fire. End of the second year, oh crap, didn't do well, but sowed a lot of seeds for a better third year. Third year, this time we are going to set the world on fire, end of the third year you come to realize that this is just a mediocre business (if you haven't already filed for bankruptcy). The problem as you will find with Liberty is that your ratios are out of skew. You can't give a franchisor 19% of your gross and get little or nothing in return. How much better would you feel putting that 19% in your pocket at the end of the year, or spending it on marketing to really boost your revenue, opening new stores, etc. Quite simply, this is not a good business model and it doesn't work.
Frustrated and Disgusted,
Why are there 3800 stores if this model does not work? What about Jackson Hewitt's model, which is exactly the same. It worked really well until the last 3 years when corporates management ran the company to the ground buying back its stock at $30. Just because you are a failure don't make everyone think they will fail. You need to look at yourself in the mirror
Liberty Tax sells fracnhises extremely well.
2nd year offices report. Office number 75 is at 400 returns from 450+ new offices. So 375+ are on average 250 or under to date.
3rd year offices report. office number 75 is at 471 from 500+ new offices.
So 425+ are on average 300 or less to date.
Do the math.
You're a cretin if you buy into all the crap.
Franchisees can't leave when they've invested $50,000+ when there's the hope that year 2, 3, 4 or 5 will be the salvation year.
And ask your AD how many territories were handed back to Liberty before you start trying to sound intelligent.
John Barilla
I posted this back in feb and you didn't respond
Most franchisees are not successful. If they where they wouldn’t need operating loans from JTH. According to the 2010 financials JTH Tax had to loan $32,488,000 in operating loans to its franchisees. Based on the 3,280 stores listed on this web site that breaks down to $9,904.88 per store. This shows the stores don’t generate enough cash flow to stay open. With the exception of certain stores the only winner in this is JTH Tax
and you won't now
Bill that is the stupidest question and that is why i didn't respond. You think a $9k for a new business is a lot? If so, let me stop wasting my time responding.
After reading this board for the longest period of time and never commenting, I think the issue so complex is very few realy understands this business. Here are some facts. Most Franchisees fail or do not reach profitability because of debt. Some of this is because they may of came into this well enough capitalized but after messing things up they end up having to borrow money from JTH just to pay for the mistakes and it will not take very long before short term debt financing kills any profit especialy if you have not mastered properly running the business from a profitable standpoint.
The money paid in royalties and Advertising Fee does not make this an impossible model to succeed in. But you do have to factor that into the way you operate and you must make sure you understand your financials. If you have no clue on your Profit and Loss and your are just hoping to come out ahead you will probably never be able to reach it.
There are good points here on both sides but the answer is somewhere in the middle and the cause of some of these issues have not ever been addressed here on this board. Good Luck to everyone current and past.