EagleTax: A Financial Services Franchisor Launches a New Tax Preparation Franchise | An interview with Jack Leonard and Richard Morris

By Mark Adkins, Business Opportunities Journal. Mar/Apr 2009.

Many people interested in acquiring a franchise face a dilemma: they can choose a new franchise with many markets available but limited franchisor experience, or choose a well established franchise and benefit from the experience, support, and advertising that a successful franchisor offers. The trade-off is that all too often there is a poor selection of available markets. EagleTax Services Group, LLC., which is affiliated with United Financial Services Group, Inc., may offer an alternative to the dilemma with the launch of its new tax preparation franchise. EagleTax has market availability, while its management team provides franchisees with seasoned franchise leadership. I recently met with franchising veterans Jack Leonard, United Financial Services Group’s Chief Operating Officer, and Richard Morris, Senior Vice President of Development to discuss the new franchise opportunity. -- Mark Adkins

BOJ: What role does your management team’s experience play in the launch of EagleTax?

Jack: Our senior management team brings over 80 years of combined franchising experience that allows us to understand the key elements of launching a proven franchise system. Training the average franchisee requires a lot of care and understanding. That experience was a learning process that took us a long time to acquire. That knowledge has been critical to our launch of the EagleTax franchise.

BOJ: Tell me about the stores. Are they typically stand alone, or in-line?

Jack: We have three formats for our locations. The typical in-line store, stand-alone stores and a business within a business. Regardless of the format the consumer experiences a professional office environment where they can have their tax return prepared and e-filed to the IRS. We wanted to create a sense of privacy in our business environment and provide a retail store design that franchisees would be proud of.

BOJ: How does it help EagleTax to have co-branded EagleTax and United Check Cashing locations?

Jack: The tax and check cashing services are both marketed to the same customer demographics. The check cashing customer is a regular payroll customer. In a United/Eagle combo the owner has an advantage over other tax preparers because they are able to market to the check cashing customer year round. Reciprocally, when a tax preparer issues an IRS refund check from the processing bank, the customer can cash this check in the same center. These two businesses work symbiotically together.

BOJ: What about a different type of existing business that wants to add the modular EagleTax service center?

Jack: Our model works in several formats and several types of businesses. We’ve adapted the Eagle Express format to fit in just about any type of business such as a small loan office, check cashing outlet, insurance agency, title & tag, pack & ship center or any variety of high traffic business that services consumers in the low-to-middle income demographic.

BOJ: Is the professional look and feel of the stores part of the EagleTax’s growth strategy?

Richard: Ultimately, it is part of what’s going to attract the consumer to an EagleTax store.

Jack: When you walk into many tax preparation offices, you’ll see government issued desks, no privacy and often inexperienced preparers, who may not even know the most basic elements of a tax return. What we’re trying to do is provide enough training to our franchisees and their preparers so they can conduct business in a very professional atmosphere and most importantly be sure they follow the due diligence requirements of the IRS.

BOJ: Does EagleTax compete on the basis of price, as well?

Jack: There was a consumer report article recently that stated that the average CPA or enrolled agent’s fees could be $250 to $500 for an individual’s return. In retail tax the average is considerably less.

BOJ: What is the size of the target market?

Richard: There are 134 million people who file tax returns and out of that group slightly over 80 million represent our segment of the market.

The tax preparation industry has three market segments. High net worth individuals, earning $80,000 plus and more whose returns often have greater complexities than the average taxpayer. These individuals often use accountants. Another segment prepares their tax returns themselves at home, often using software applications like TurboTax. The third group depend on tax preparation service centers to prepare their taxes year after year. You have this approximately 80 million group of consumers that is making under $45,000 a year. Many of them are non-banking customers, they probably rent, they don’t own their own home and they’re looking for a professional tax preparer where they go to get their taxes prepared and get their refund typically within 24 to 48 hours.

BOJ: Even though it’s a big industry, it’s somewhat crowded. Isn’t it?

Richard: The two major players, H&R Block and Jackson Hewitt, represent about 23% of the market, which leaves another 77% of the market wide open.

Jack: Franchising creates an advantage. It gives the franchisee a great opportunity to pull market share away from the independents. (The other 77%).

Usually when people go into business by themselves the percentage of failure is much greater than going into a franchise. In franchising, you are in business for yourself, but not by yourself. The EagleTax support team is with you every step of the way to assist you with site selection, store construction, training, marketing, and day-to-day operations.

BOJ: In addition to site selection and training, do you provide assistance with advertising?

Jack: We provide all the in-store merchandising for our franchisees, all of the artwork for their customized local advertising. We have all the materials online, they just need to take the materials to their local printer and have it customized with their address.

BOJ: What kind of marketing do you think is the most effective?

Jack: Our job is to build a strategic placement of storefronts so that the EagleTax name becomes equally recognizable with our service.

If you go in business for yourself, it’s unlikely you can put up as many storefronts as you need to create a brand image. No advertising is stronger than storefronts to say what you do.

BOJ: Are online tax prep services drawing business away from professional tax preparation businesses?

Richard: Statistically, every year, the number of customers going to a professional preparer is increasing. That’s despite the fact that there is an increase in online tax returns. The online returns are completed by consumers who were doing the return at home and are confident in preparing their own return and most likely would not have been going to a tax preparer.

BOJ: Would you say, then, that the tax preparation industry is recession resistant?

Richard: We all have to file tax returns. So, there is an element of recession resistance.

Jack: Our customers are often eligible for significant refunds from the IRS and quick access to this money is critical to them. So, they are more likely to file early in the season.

BOJ: What kind of background do you find is ideal for an EagleTax franchisee? Does one need a tax or financial background?

Richard: They typically have a financial or management background. But they also understand retail. You are dealing with the public, it’s retail hours, you are not walking into a doctor’s office – it’s definitely professional, but there is a retail component they need to understand.

Jack: Each franchisee is trained to do an individual tax preparation – we do not do corporate returns. The first thing we tell new franchisees when they come into class is ‘this is retail tax,’ we are not training them to be accountants. If the client needs an accountant, they need to go to an accountant.

BOJ: I know it is a seasonal business. What is the peak season?

Jack: There are actually two peak seasons. The first peak season is generally around the 15th of January, when the IRS first starts accepting tax returns, and that goes until the end of February. You process around 60% of your returns in those first six weeks. The second peak season is the last two weeks right before taxes are due.

BOJ: Does the franchisee typically do the returns?

Richard: We want them to understand the operational part of the retail tax business but not necessarily be the one who is actually preparing the taxes themselves, although they may choose to do so. It is important they are managing the business and the business isn’t managing them.

BOJ: Is there a typical tax preparer that franchisees hire?

Jack: The profile of the tax preparer can be a retiree who is looking to supplement this income, a housewife, students in community college or university, and finally people who are looking at it for a career.

BOJ: Tell me about the typical client session.

Jack: Most retail tax customers file an individual 1040EZ, which is a simple return to process. The tax preparer conducts an interview with the customer that takes anywhere from 15 minutes to half an hour per client. During that time the preparer will enter the clients’ information into the software program which will calculate the customers’ tax liability or refund. If a preparer only sees a half a dozen people in a day, they can still make a considerable amount of revenue.

BOJ: I know that you are positioning EagleTax to compete on both price/quality and the professional appeal of the stores. What are you doing to attract franchisees?

Richard: In the tax industry the royalty plus marketing percentage ranges from 21% to 33%. Ours is 14% royalty plus 4% advertising and marketing. The cost of entry is low compared to others.

BOJ: What is your franchise fee and what is the total initial investment?

Jack: The franchise fee is $20,000. The total investment range depends on the type of format that the franchisee elects. We want our franchisees to have the best chance to succeed, so we are careful in disclosing the full start up costs.

BOJ: Are there prime locations still available for new franchisees?

Jack: We have a definite territory advantage. There is a huge opportunity in terms of the availability of markets where often our competitors are sold out. We have evaluated the demographics of potential markets and have identified key tax market areas in the United States using IRS data.

BOJ: What kind of traction are you getting in the marketplace?

Jack: Last year was the first year we were actually open, with only three stores. By the end of the year we had 13 contracts and 8 stores open. We probably will have 25 to 30 stores open, for the 2010 season. This is very rapid growth. Once we reach 30 to 50 centers, we feel it will really take off in a huge way.

BOJ: Jack, you have served as an officer at United Financial Services Group for 17 years, following an equally long career as a Professor. What have you liked about the franchising world versus academia, or vice versa?

Jack: There are a lot of rewards that come from franchising. In a way, it’s very much like teaching. I’ve enjoyed the challenge of building the business models for United and EagleTax. It’s a great feeling when you’re guiding a new franchisee into the industry and working collectively toward a successful business. It’s been a lot of fun. | BOJ