The Accidental Franchisor

Last Updated Apr 14, 2011 1:32 PM EDT

By Nick Rizzi, Founder and CEO, Smart Tax, Brooklyn, N.Y.
Six years ago I decided that knowing how to do taxes would help me broaden my financial advisory practice. After doing the math, however, I realized that for just three or four months of work, a tax preparer can make more than some financial advisers make in a year. I knew I wanted to get into this business.

It seemed like the easiest way to get started would be to buy into one of the established franchise models, so that I could hit the ground running with minimum startup hassle. The problem was, none of those established companies were looking for more franchisees in my area. So I decided to start Smart Tax from scratch.

I never intended to become a franchisor myself, but five years later that's what I had become.

Starting from scratch
I rented out a 500-square foot commercial space and launched Smart Tax in 2006. During the first year, I made all the classic mistakes. For instance, two months after I moved into my office the roof started leaking. I told the landlord it needed to be fixed, but he told me, "Read your lease. That's your problem." That's when I first learned that commercial leases are a heck of a lot different than residential leases. I had to pay $3,000 for a new roof.

That first year I completed 330 returns and brought in about $65,000 in revenue. It was enough to cover the expenses of setting up the business -- the construction costs, the equipment, rent payments. It left me with a profit of about $1, but I was encouraged enough to open two more locations. By 2008 the original office had reached $208,000 in revenue and friends and family were starting to ask me how they could get into the tax preparation business, too.

My model expands
There's a big difference between tax preparation and the business of tax preparation. Running a business involves dealing with compliance issues, building relationships with vendors and banks, developing marketing strategies, and setting up technology systems. All of that has to be in place before the doors open. That's why I thought buying into a franchise made sense. The franchise would take care of a lot of those hassles that I would otherwise have to manage.

That's exactly the advice I gave to people who wanted to get into my business: Go to the big franchises and avoid starting from the ground up like I did. But they encountered the same problem: The major franchises were all sold out. So I helped some of them get started on their own and then one thing led to another... and in 2010 I started franchising Smart Tax.

Franchising has its own set of challenges. The people who want to open franchise locations are usually just like I was when I started Smart Tax -- they're not experienced business people and they don't have the skills and knowledge needed to run a tax preparation business. Sometimes they don't even know how to complete a tax return. I turn away some people either because they lack capital or because they just don't seem like a good fit for this business.

Franchising means changing
Instead of struggling to make my own business successful, I now spend most of my time helping franchisees learn from my mistakes. Once you become a franchiser, instead of selling chicken wings (or furniture, or whatever), you're teaching other people how to sell chicken wings. In my case, I used to do a few hundred tax returns a year myself, but now I may only do 50. That's a big change in my job.

Although I miss working closely with customers, now I enjoy working closely with franchisees and sharing their successes. Since we started franchising in 2010, Smart Tax has expanded throughout New York City, New Jersey, and Philadelphia, and we're planning to expand further. Last year company revenue was well over $1 million and this year we'll have 30 locations open for the tax season.

I'm glad I don't have to build a business from the ground up again, and I'm not sure I'd recommend my approach to anyone else if they can avoid it. Fortunately, in my case, being pushed to do so turned out for the best.

Nick Rizzi launched Smart Tax when he was 29 years old, using his life savings and a credit card.
-- As told to Zack Anchors

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