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Do The Math

Weary taxpayers + good location: Does Jackson Hewitt add up?

Each year, Jackson Hewitt Tax Service goes through a binge-and-purge ritual. More than 3,000 Jackson Hewitt Tax Service centers fill their coffers as an onslaught of tax business begins in earnest in January and disappears in April-then the rush is over. In fact, according to Bob Schiesel, the leader of a 250-member franchisee association that remains unrecognized by the franchisor, "The majority of our sales take place between January 20 and February 9 of each year."

Moreover, Jackson Hewitt Tax Service centers serve customers in the lower income brackets, and the behavior of those customers is as predictable as a salmon run. Those who expect refunds hit the tax centers early and take full advantage of tax refund anticipation loans, while the procrastinators get around to facing their issues closer to the April 15 deadline. As a franchisee, your challenge is to learn to prosper during this cycle and cut expenses during the majority of the year. Since all the Jackson Hewitt locations are run by only about 600 franchisees, the ability to prosper appears to be dependent on casting a wide net during tax season.

Jackson Hewitt has created some innovative ways to take advantage of its business cycle. For example, when you buy a Jackson Hewitt territory, you're permitted to open any number of approved locations in that territory without paying additional initial franchise fees. This has encouraged the development of sites placed in Wal-Mart and Montgomery Ward stores, where franchisees pay rent during tax season and then remove their business presences until the next year. The centers may also be found inside other major businesses-these "affinity" locations spring up in corporate headquarters on a temporary basis as a service to the employees trapped inside.

One of the secrets of buying into this franchise is that the territory boundaries are fully negotiable. Company president Daniel Tarantin reluctantly admits the fact and states that the size of a given territory is determined by "a number of factors, including population." The current version of the franchisor's UFOC states that "most territories have at least 10,000 people, according to the 1990 census." If you do a little homework, you'll find most territories have far more than 10,000 people. You stand to gain from a larger territory, considering you pay no initial franchise fee for subsequent locations within the prescribed area. It's certainly something to ask existing franchisees about.

When you're speaking with franchisees, also find out what they pay for the seasonal workers who assist in the preparation of tax returns. In fact, the UFOC states that your success depends a great deal on your ability to hire, train and supervise additional personnel. Item 7 of the UFOC states that the range of the initial investment runs from $47,430 to $75,205, but this total doesn't include royalties (15 percent of gross), advertising ($5,000 for a grand opening, then 6 percent of gross), electronic filing fees, bonuses for your hourly workers or your salary. In addition, the estimate only allows for $1,275 in site improvements. It's easy to see that your "real" opening costs will be higher.

You should evaluate these costs in light of the company's earnings claims stating that the average office open for one year completed 254 tax returns. Stores do tend to grow in volume over time, but potential franchisees should decide whether they can survive that first year with less than 300 tax returns' worth of work.

The bottom line: Before purchasing any franchise, you should investigate the system in general and speak to existing franchisees in particular.

Jackson Hewitt is actively recruiting franchisees in the Northeast United States as well as in the Ohio River Valley and on the West Coast.


Todd D. Maddocks is a franchise attorney and small-business consultant. You can reach him at TMaddocks@aol.com.


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This article was originally published in the December 2000 print edition of Entrepreneur with the headline: Do The Math.

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