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Tax Prep Chains Make Moves into Accounting

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August 28, 2014

H&R Block and Liberty Tax have been expanding from traditional tax preparation services into other areas such as bookkeeping as they reach out to service small business clients year-round, giving traditional accountants some extra competition.

On Tuesday, Liberty announced a bookkeeping service built around the cloud-based accounting software Kashoo. The new bookkeeping service, dubbed Liberty Accounting, is intended to help Liberty Taxís 4,400 franchisees expand beyond tax season and provide additional services besides tax prep and filing.

The number one tax prep chain, H&R Block, recently announced plans of its own to attract CPAs and other accountants into selling their practices to Block or becoming franchisees (see H&R Block Reaches out to Attract Accounting Firms). In conjunction with that effort, Block also said it would start offering bookkeeping and payroll services to small businesses through cloud technology.

Competing tax chains such as Jackson Hewitt and TaxSlayer are still sticking to their core tax prep services, but if they see significant growth from Block and Liberty, they could be induced to change their minds.

This isnít entirely a new trend. Individual franchisees for Block have already offered services such as bookkeeping and payroll in the past. Another franchiser known as BookKeeping Express offers bookkeeping services to small businesses through its franchisees. Block made a major move into the accounting field in 1999 with RSM McGladrey, operating what it called an alternative practice structure in conjunction with the CPA firm McGladrey & Pullen before selling the business back to McGladrey in 2011.

Block has tried other financial businesses in the past, such as the ill-fated Option One subprime mortgage business that it was forced to sell at a heavy loss in 2007. In this case, Block does not appear to be making such a heavy bet and is mainly out to attract small CPA firms whose owners are looking to retire or planning for an eventual exit.

If the idea catches on, small accounting practices could find themselves competing against Block, Liberty and perhaps other chains for their small business clients and will need to diversify further by adding extra services to avoid being lumped in with the franchises.

Do you think H&R Block and Liberty Tax will provide serious competition to traditional accountants in the small business market?

12 Comments

To: sroth

Do you happen to know that some of the Liberty's Franchisees are pulling a real fast one on the community they suddenly open up office? I know for a fact of TWO Franchisees that opened; office in two different communities and took everyone for everything they could! Once in the office were opened, they snowed the owner of the building into waiting for the rent payments till the 15 of April...Well yes, you guessed it...The fifteen of April came and the landlord was told "We are so busy today......can you came back tomorrow?" Innocent enough, right??? Well the morning of the 16th the Liberty Franchisees were so...long gone.....it wasn't funny! They emptied the office of all the furniture computers and files in the middle of the night and...VOILA'....they were gone! Know anyone like those two? And to whom would a property owner complain to?? No one! Definitely NOT Liberty...I think Liberty should vet their Franchisees far more carefully...and make sure they are not thieves and scammers... They left such a bed test on everyone's mouth that I am positive they ruined it for all the other Liberty Franchisees in the area ...Not that I care.... Just saying....

Posted by: SNAFU | September 8, 2014 4:54 PM

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There are differences between bookkeeping and accounting, between what bookkeepers do and what controllers/CFOs do. If our practice was only on the low-end, I would be worried. But H&R Block and Liberty are not serious competitors for higher-order financial operations and strategic financial advisory services. Nonetheless, that could change, and underestimating competitors has been the undoing of many previously-successful firms...

Thomas D. is right; CPA firms need to be exploring cloud-based outsourced accounting services to move beyond commodity tax, assurance and old-fashioned write-up work.

Check out my outsourcing blog at www.virtual-lucidity.com.

Posted by: jjcaru | September 7, 2014 6:08 AM

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I just fired one of HR Blocks finest with 11 years of experience and bookkeeping experience too. I found out that her tax work was never reviewed and that she had relied on the CPA to find her bookkeeping errors at her other jobs. When I keep finding errors and tried to ask her about them, she told me she had really just been a data input person. Oh, but she is an EA. If this is what these business are planning to hire, good luck to the public.

Posted by: fluffster | September 4, 2014 4:12 PM

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Bundled, fixed price small business cloud bookkeeping and payroll services represent a tremendous opportunity for accounting and tax professionals. Any firm that doesn't see this and adapt to the fundamental change of cloud apps will see declining customer counts, revenues and profits. The marketplace is in charge of all of this, folks.

Posted by: whitelist | September 4, 2014 2:52 PM

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Based on the quality of the chains' tax preparation service, bring 'em on. This should provide an additional source of referrals as soon as the screw-ups get out and the notices flood the mails. I don't know whether it's H&R or TurboTax, but both provide a pretty steady source of new business.

It's pretty funny, unless of course, you're the taxpayer.

Posted by: topbeancounter | September 4, 2014 1:23 PM

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I agree with the above comments. You cannot trai someone to be a good bookkeeper or a tax return preparer in 90 days. They can't do tax returns properly and I expect the same resuklts from their bookkeeping attempts. I'll be happy to rescue anyone who starts with any of these services.

Posted by: joeltaxpro | September 4, 2014 12:36 PM

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I agree with ontargettax. Many of my clients came to me after the IRS contacted them on a return prepared by one of the tax chains. You cannot train a bookkeeper in 90 days. A client used Kashoo and found it acceptable for a A/P and A/R but extremely clunky and difficult to use for anything else. I expect my business to increase because of this.

Posted by: Andrew H | September 4, 2014 9:24 AM

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I do see Liberty Tax being competition for the CPA's and small bookkeeping firms, for one many of Liberty tax franchisees already have that small business bookkeeping incorporated in to their business plans and are already attracting them to move over, as far as pricing our bookkeeping and payroll rates are far less then the competition out there so its just a matter of time that small businesses who are already watching their budgets to come over to Liberty for great pricing and outstanding customer service, I can speak for myself and as a Liberty Tax franchisee with over 15 yrs experience in the bookkeeping and quick books area along with payroll that we are now training our managers on this side of the business and for me most of my employees already have that knowledge. so I believe in my area that we are going to have an impact as this is just another avenue for clients to come over from the high paying CPA firms and build relationships with us.

Posted by: sroth | September 2, 2014 10:05 AM

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"Ontargettax" makes excellent observations. It is doubtful that the large franchises have the ability to provide the training and required software technology for the employees that their low wage structures will be able to attract.

Franchisees with inadequate professional education and management experience may well drive business to well established, but unmarketed accounting practices.

Accountants' World and a few other companies already have cloud based suites of accounting and other applications that will provide strong competition to the tax franchisee firms.

Posted by: Pewsbury | August 29, 2014 5:21 PM

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No. I don't think they will be competition.

Posted by: Sue H | August 29, 2014 11:34 AM

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That's just what I was looking for... someone to give a 30% royalty to, for my business model!

Posted by: ShammahRama | August 29, 2014 10:39 AM

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Competition...if they charge for bookkeeping like they charge for tax prep; NO. If they undercut us on price then , yes. But with their history of paying employees slightly better than minimum wage, I'm not sure where they are going to find all of these qualified bookkeepers. One must remember garbage in, garbage out. They cannot train a bookkeeper in 90 days even to do the simplest set of books. With the software they are using, most info will be by bank and credit card download; you just have to assign the correct account. But how about assets and liability accounts and COGS and general journal entries? a newbie won't be able to do them. and having once worked for them as a multiple store manager; i wouldn't want to supervise a bunch of green bookkeepers. It's bad enough supervising beginning tax preparers; at least W-2's have all the same info on them. Any business owner who approaches them for bookkeeping needs to ask the following question; how long has the person who will be doing my bookkeeping been doing bookkeeping and what are their credentials?

Posted by: ontargettax | August 29, 2014 10:24 AM

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