Startup costs for wannabe tax franchise owners

Some people who want to be their own boss, but don't want to "reinvent the wheel," look into franchise opportunities.

The estimated startup costs for a McDonald's franchise will run you one to two million dollars, depending on location. McDonald's has strict requirements for franchisees, which include industry experience and a minimum of $300,000 in liquid assets. In addition, a potential McDonald's franchisee has to find third-party lenders willing to finance the rest of the start-up costs. So, basically, if you don't have a million-plus dollars of your own to sink into a McDonald's franchise, you have to show McDonalds that you can find other people who believe in you enough to lend you a lot of money. If you screw up in running a McDonald's franchise, you are going to cost yourself and/or your lenders a LOT of cold, hard bucks, so those outside lenders have incentives to really carefully scrutinize.

Starting up a franchise tax shop, on the other hand, takes a lot less than starting up a McDonalds. Jackson-Hewitt and Liberty Tax don't ask for any "industry experience" or tax knowledge, just "general business experience." Start-up costs run $60K to $90K. Minimum liquid assets requirement is only $50K and Jackson-Hewitt and Liberty Tax will lend you much of the startup costs themselves, so you don't even have to find third-party lenders/investors who believe in you. H&R Block, the oldest and biggest tax franchise chain, claims their start-up costs are comparable or even less, and they too will lend you much of the money themselves.

Bottom line: If you screw up running a tax franchise outfit, there isn't a third-party lender that stands to lose a lot of money. Entry into the big name tax franchise industry is a lot easier than entry into the fast food industry.

And, of course, the health department comes around regularly to inspect each and every McDonald's for health and safety violations.

Although IRS site reviewers visit every VITA site at least once, only a tiny fraction of commercial tax preparers are EVER visited by IRS or Treasury Department inspectors. There are no routine visits by regulators at commercial preparers, just random and statistically improbable spot checks.