Recession Proof: Not Tax Preparation Services
The Wall Street Journal ran an ad headlined "Recession Proof." The ad was for franchising tax preparation services. Seems reasonable, right? Everyone has to file a tax return, even during a recession. Well, it turns out that they don’t have to pay someone else to do it. In the average recession, consumer spending on tax preparation services drops 14 percent from peak to trough (inflation-adjusted and seasonally adjusted). The average recession lasts 15 months in this industry, from peak to trough. After the trough, it usually takes another 24 months to regain the previous peak level of spending. That’s not recession proof in my book. Here’s an example from the 1980 recession:
My purpose is not to trash this franchise opportunity. It may be a great business, all things considered. However, claims of being recession proof are most often wrong. Take them with a grain of salt until you’ve looked at the data.
Comments
OK, I’ll trash this investment opportunity.
In my experience, tax preparation is a repeat business which you build up over time, etc. The exception is in areas where there is a lot of population turnover or new development. What are they offering to add value- research in locating franchises, advertising, etc? If-you-build-it-they-will-come will not work as a strategy.
Not to mention the seasonal nature of the business. Are you going to make enough to support yourself the rest of the year, or do you have another line of business to fall back on?
I opened a new business this past year. One of my greatest expectations of the tax season was the demand for the services. With all of my advertising efforts I had a very slow tax season. If I did not provide other services throughout the year I would not have survived the first year. I am sure that as my business grows through the years that the tax preparation services will increase the bottom line of my business and create a recession resistant source of income. I understand the premise that was presented by the ad as they were promoting the increase of consumers trying to save every penny they possibly could. With that in mind the consumer would also look to less expensive means to prepare their taxes(online and software)as opposed to going to a professional. This is clearly demonstrated in your chart. With all these consumers utilizing the over the counter and online products I predict an increase for tax preparation offices in creating ammended returns.
Tax prep work is a business built on trust and over the years, not a business where you unlock the door on day one in a strip mall and whamo you have 500 customers. Also most who use a tax preparer, will return 98% of time if their expections are met. I also have many new clients who went with tax software (turbo tax,etc.) and came to me because they just didn’t understand what the program was asking them or what info. to put in…
As for being recession proof business, yes it is as long as you have clients returning from previous years. Starting one new during a recession would be iffy the first 2 years, especially if you have to pay office rent,utilites,etc…
Saying that you cannot open a storefront and have 500 customers your first year is just wrong. I did it and so has many others in this country. A very good freind of mine opened his first franchised tax office up last year and did the same 500 customers first year. Around 50 percent first part and 50 percent second part.
I have owned mulitple businesses in the past and always love to listen to the naysayers or the ones who made a ton of mistakes when they tried it or better yet individuals that have never taken the risk of opening there own business sit there and tell everyone else because of there failures that its impossible.
If you want to get into this industry or for that fact any, dont go talk to the people who have failed and now talk only negative or the people who still have jobs and not willing to risk anything for a better life. Go out and find the real story out of people that have done it and done it. If they tell you only great things dont believe it and on the other hand if there all negative dont believe it. Find the ones who will tell you what they did and also tell you the mistakes they made.
I thank god every morning I wake up that I have learned to investigate all matters myself rather than depending on individuals such as on this site telling me what I can and can’t do. Guess what? I did it and I’m very succesfull!!! I don’t have a college degree, I live in a major city, I do all the local Fox affiliates tax stories for them and Im living the American Dream.
Please take controll of your life and your decisions. Be able to rationaly look at yourself and figure out what you have been doing wrong and what you can do to improve on it. Then take that same attitude into your business and while it takes alot of hardwork and dedication you can be sucessfull and no one can tell you otherwise.