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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Q3 Fails to impress! Down in Volume 4.4% in Returns yet LTS has more than 150 net new stores! Revenue is better because of higher fees and Financial products that Franchisees eat. John promised the $750 would be a driver for increase in Returns. Turns out only one making great profits is John. Yikes that means average existing store is down around 10% in Returns. Count yourself lucky if you are not in this biz, the industry is in a slow decline but especially so with HRB and LTS. CPA s and Mom and Pops will do fine without the 19% cream off of the top and eating $45 for each RAL. Lots of Zees won't be able to pay Feb Royalties because of Fee Intercept. Look for Liberty's acct receivables and interest income to spike upwards on the backs of Zees.
I was surprised at how many new locations Liberty says they have.
Are these new franchisee's? If so, you ignored us and now you will pay for it. I have no sympathy for people who don't do due their diligence before investing their money.
So many negatives in these financials. Bottom line is Liberty Corp home office is making money off the franchisee's hard work, savings, and loans to them.
Shame on anyone that buys in now. As Bill has often posted; "buyer beware"
Don't be fooled. Look at financial product income. It's big. Therefore the majority of the returns are probably $750 loan products. Let's be generous and say only half. That's $45 on each return that corporate gets royalties on above and beyond the real tax prep fees collected and kept by Zees. At 50% that is $22.50 extra per return. If average return is $300 that would make Liberty to be collecting royalties on $322.50. That gets them a false 7.5% bump. Back that out and that means tax prep related revenue is not up at all, it's really down. Sure corporate is making their money, but the Zees are down in YTD income if you use this real life calculation, instead of phony accounting. If the percentage of loans was higher than 50%, the difference is greater than 7.5%. Of course these numbers are just as examples, so John doesn't get his panties in a bunch, I don't know the exact numbers. I just know that the return revenue is really worse than they are reporting, even if it's perfectly legal that way.
Now to the return count. It looks like we are only down 4%. However that was before peak, which went horribly for many, many Zees. Unless John mentioned the YTD as of 2/29 as well on his call, it wasn't in the report. That makes me think it wasn't so hot. HRB reported it in theirs only because their loss became less as of 2/29. Either way, neither of the companies is doing great. It's not a good sign for the industry.
The company presents unaudited financials that show revenue up contrary to the fact that the IRS is reporting 3.1% less tax returns filed and of course these results exceed HR Block's which decline. Keep in mind these are unaudited results presented by a company who was required by the SEC to restate their "audited" financial statements. So these numbers should be taken with a grain of salt.
A review of the financials show two abstract areas as being the driver for the company's good results. Financial products were up 26.8% and income tax preparation fees by company owned stores was up 69%. The company now operates 250 locations compared to 125 locations last year. So in a year when overall tax filings are down by 3.1% which is consistent with the rest of Liberty franchisees your company owned locations are up by 69%. Something just doesn't add up.
Wall Street who usually plays loose with there investor's money couldn't buy what the company was selling. The company's stock price fell 20 cents to 16.80. This decline is in spite of the .16 cent dividend the company has authorized.
According to an article in Forbes as of 2/16/16 return count about the same number of returns were filed as last year. The percentage is 50/50 between self-prepared and a tax professional. So with two thirds of returns to be filed it still looks good that over 64% of returns will be done by a paid tax preparer.
But it is a highly competitive market and it takes time and energy to build a tax practice. There is no quick way of acquiring a successfully practice through franchising. As much as I like HR Block, if your not buying an established practice, I would not suggest going that route. Start small, keep your day job and slowly build a base of business. Eventually you will be able to go out on your own.
I know for those of us who find themselves going through a career change franchising is very appealing but most of these companies are built on capitalizing on your hopes, dreams and greed!!! You don't need Super Cuts, Curves or Liberty tax to build a business. What you need is a belief in yourself and a good business plan. Either way it will be a challenge but if you go it alone you will have control of your own destiny. Nothing worse then to be paying someone for a plan that doesn't work and being told it's because your not "following the system"
Buyer Beware!!!
I agree. But you will probably need to keep your day job. Most clients only change preparers if something happens. It's also hard to transition into existing office. First year you will need a line of credit or a partner. I'm working 7days a week until April 18th and can work 2 days rest of year but took 6 years to accomplish. Market is full.
Liberty stock is doing very well today, as it should be. I am no fan of Liberty Corp. but as long as they can get franchisee's to burden the cost of doing business, while Liberty Corp. reaps 19% of their income, Liberty Corp. will be profitable.
It is all legal and to a certain degree ethical. Liberty Corporations business practices are in the open now because of this site and their status as a publicly traded company. People looking to join the Liberty system now have plenty of information to look at before making a buying decision.
As a franchisee, you foot the bill for a very few to get very rich. If Liberty Corp. had to pay every expense incurred by all of their locations, they would be out of business in no time at all.
So, I will say to you what John is thinking but keeping to himself; the franchisee's have made me a very rich man, I cannot believe this!
He is laughing all the way to the bank.
Sad but True: John has made a lot of money off of this business model but he was hoping to cash in on a lot more. Remember he owns 995,849 shares of the company. A year ago this stock was selling at 28.00 a share today it closed at 17.49. His wealth is all on paper and even if he wanted to sell today there are not enough buyers for the stock for him to do so.
JH cut his salary to zero at the end of last year. He still receives the dividend on his shares which makes his salary around $600,000.00. While he makes it look like he voluntarily made this move. There was pressure from other majority shareholders for him to give up his salary.
JH is an egotist and so while he has made money his real source of pleasure is being this go to guru of the tax industry with 40 years of tax experience. However, in the next year or two he will be exposed for the fraud he is. When it happens it's going to be in large part to this site and the people who were willing to keep pursing this matter.
^^^It has been said many times on this forum, bill, that JTH is NOT a Tax guru with 40 years of Tax experience. That's where the public needs to know the truth. He is a marketer of Franchises. A seller of B.S. A rip off artist to say the least. He sells on a pipe dream and then goes in for the kill. He is a great Salesperson, not a great Tax Accountant. Not even close. I betcha he still, to this day, cannot do a complicated 1120, 1065, etc.
He sells "2 x 2 mile territories" made up superficially. It's all a big show to collect (steal) as much money as he can.
I pray that he WILL be exposed very shortly for the fraud that he is, bill. That would be awesome and very welcomed. I'm waiting for the headlines.
SanFranDan: "He is a marketer of Franchises. A seller of B.S. A rip off artist to say the least." - couldn't of said it better myself. The whole retail industry is in a massive and quick change it is going to a expertise business quickly and I agree the LTS and JH model is done and he will be exposed shortly.