If you’re considering franchising your tax business, congratulations — you’ve likely already developed a profitable, thriving tax practice, and you’re looking toward the next stage of growth. Just like starting your business from scratch, becoming a franchisor can be an extremely beneficial move for your income and quality of life, but those first steps can feel overwhelming.
Our quick guide will help you cut through the confusion and lay out the basic steps you’ll take to get started.
Is franchising right for you and your tax business?
Having a successful tax practice may not be reason enough to pursue franchising. You’ll learn an entirely new set of skills and business practices as your primary role shifts from small-business owner to franchisor. You’ll have to heavily consider both your personal desires as well as the health of your business and viability of franchising.
As your franchise grows, you’ll likely find yourself working less and less as a tax preparer and more as a mentor to your franchisees. For many franchisors, this is a welcome shift, allowing you to develop deeper, more rewarding professional relationships. You’ll likely spend much more time with your franchisees than you did with your tax clients, especially when they’re just beginning to learn how to open their tax practice. If this type of role is not appealing to you, however, franchising may not be beneficial for you personally even if it is financially.
How much will franchising your tax practice cost?
Perhaps one of the most important questions you can ask is whether you have the capital to pursue franchising. Among other things, you’ll need to factor in the cost of:
- Legal fees
- Developing your Franchise Disclosure Agreement
- Providing audited financial statements
- Registering or filing your franchise (in some states)
Developing a franchise can cost as much as $100,000, though a range of $18-35,000 is likely more realistic for most tax professionals. Keep in mind that this figure doesn’t include the cost of marketing your franchise after it’s developed. You’ll also need to consider how you plan to find franchisees in a competitive market and how long it will take to see a return on your investment.
Should you work with a franchise consultant?
While it’s not strictly necessary, some business owners choose to hire a franchise consultant during this stage. Typically, these consultants charge less than franchise attorneys, and they can help you determine whether franchising is right for your business before you invest additional money and time in the process. If you decide to move forward with franchising, they can help you find an experienced attorney.
Hire a franchise attorney
Franchise laws are complex enough that you’ll absolutely need expert support as you walk through the development stage and beyond. A franchise lawyer will help ensure that you’re following proper legal procedures and assist you in creating your Franchise Disclosure Agreement (more on that below).
When you’re choosing an attorney or law practice, look for ones who specialize exclusively or almost exclusively in franchise law. If they claim several more areas of expertise, they may not truly have the franchising experience you need.
Create your franchise disclosure documents
Creating, registering, and filing your Franchise Disclosure Documents, or FDDs, is one of the most time-consuming and most critical steps in the development of your franchise. FDDs are legal documents that include things like a history of your company, financial statements, and operating manuals for your franchisees. They’re legally required, must be updated each year, and must be registered or filed in certain states. The FDD includes 23 items or sections, the longest of which is usually spells out your contractual obligations to your franchisees.
Creating your FDD will involve making numerous critical decisions about the structure of your franchise operation, including:
- Your training process for franchisees
- Your franchising and royalty fees
- Where you’ll sell franchises
- The territory you’ll grant to each franchisee
While your attorney will be instrumental in writing your FDD and ensuring that you’re in compliance with franchise laws, the decisions about how to structure your business will ultimately be up to you.
As a successful tax preparer, you’re no stranger to marketing yourself and finding clients. Once you’re legally ready to sell franchises, you’ll find those skills to be more important than ever. While some of your marketing strategies will be similar, you’ll have to build a deeper level of trust with your potential franchisees. After all, they’re likely investing a significant portion of their savings, possibly leaving their job, and trusting your business model and training to help them succeed.
This recent guide from Forbes can help you develop and implement your franchise marketing strategy.
Getting there will take months of work and thousands of dollars, but with a successful tax practice and an expertly-crafted FDD and marketing plan, franchising your tax business is a viable and potentially extremely profitable expansion option.