Uber and Amazon may be the models for the tax preparation process of the future, according to Keith Alessi, the former Jackson Hewitt chairman and CEO who recently joined the board of upstart tax prep franchiser Happy Tax.

Alessi has also invested in Happy Tax, which was founded two years ago by CEO Mario Costanz with a business model in which franchises transmit their customers’ tax returns to a group of CPAs who each have a minimum of five years of training and experience (see Happy Tax aims to shake up tax prep industry). The company has just wrapped up its second tax season and is in the midst of raising new financing through the crowdfunding site Wefunder.

Happy Tax logo

Alessi, a CPA, is known as a turnaround expert who took the helm at Jackson Hewitt in 1996 after the departure of founder John Hewitt, who went on to start Liberty Tax Service. Alessi steered the tax prep chain through a successful sale to the conglomerate Cendant in 1998 for approximately $480 million, and went on to run another company called Telespectrum Worldwide. (After a series of financial reverses in 2011, Jackson Hewitt ceased trading on the New York Stock Exchange and is now a privately held company owned by Bayside Financial.)

Alessi has helmed a number of other companies in different industries over the years, including Farm Fresh, Westmoreland Coal and Lifestyles Improvement Centers.

“I’ve got a lot of experience sitting on corporate boards and I recently retired as CEO of a company I was running out of Colorado, so I was looking for something to do,” he told Accounting Today. “Mario and I had talked over a period of time. He knew me through my ties to Jackson Hewitt. Melissa Salyer is on his staff, and Melissa and I had worked very closely together when I had run Jackson Hewitt. As thing fermented and he got closer to putting his company together and raising funding, he was putting together a board and I was a guy who had relevant experience. He contacted me. We got along, and I liked him, so now I’m on the board and an investor too.”

Alessi declined to say how much he has invested in the company. Costanz said that prior to the current round of crowdfunding, Happy Tax had around $1.5 million in funding. The majority of that is $1.2 million invested by Costanz himself, plus another $250,000 to $300,000 from outside investors like Alessi.

“I think he has got a little different angle on things,” said Alessi. “It’s always exciting to be around a startup. Taxes are always going to be here, but technology is changing so quickly that people who approach the industry in different ways, with less brick and mortar commitment, might enjoy a certain advantage. There are obviously lots of online platforms that you can file taxes on, but for the target customers we’re talking about here, they either don’t have that ability or interest to do it themselves. I think what he’s doing is interesting and it remains to be seen as this rolls out how it all plays out.”

Alessi is bringing some of his experience at Jackson Hewitt to the board at Happy Tax. “I was brought in to replace John Hewitt in 1996,” he recalled. “I took over as the CEO. We engineered a two-year turnaround, sold the company to Cendant, and we were the leading gaining stock in the United States back in 1997. It was almost a 1300 percent gain.”

Costanz said he has known Alessi for several years. “He’s been a great friend and advisor, and we saw an opportunity to bring him on the board of directors because the growth thus far in the first two years has been amazing,” he said. “To take it and scale it to what our plans are already, having an executive with the nature of his experience as a CEO of a number of publicly traded companies, and having access to capital markets, and also being the one who turned around Jackson Hewitt, and engineering that deal with Cendant, was just an amazing opportunity for us to add another layer of expertise to our team.”

Alessi sees the tax preparation model moving more online now. “You look at what Uber has done,” he said. “You look at what Amazon has done. People who are not reliant on owning assets are doing pretty well with this millennial generation. I think Mario has got the right angle here in terms of how do you do the best of both worlds. It’s the best way of the online plus some face-to-face expertise, without the downside of having to rent a bunch of offices. I think he’s got a good model, but it remains to be seen. I’m optimistic, and I think he’s enthusiastic. He’s got a good team around him, but you never know with these things.”

Costanz has been building Happy Tax as an online business, although he has been in talks about acquiring a small tax prep chain that would give Happy Tax a small brick and mortar presence.

“Our model is virtual, so our franchisees and independent contractors work without any retail establishment,” he said. “Retail is dying, in our eyes, and pretty much in the eyes of the rest of the universe as well, so it’s not a retail brand. We don’t have any of those, although I can tell you that we are closing in on the acquisition of a competitor that, for a small chain, will give us a retail storefront to help those people convert into Happy Tax at a later time. It’s not a done deal. We’re shooting on getting it done by the end of this week, the end of our fiscal year. But it’s not public yet.”

Costanz said his plan for Happy Tax is to get to 1 percent of returns, or approximately 700,000 tax returns, within five years.

Alessi doesn’t have a specific goal on where he would like to see the company in the next few years. “I’d be very reticent to try to place a number on what growth should look like,” he said. “One of the advantages you have when you’re small is you always have a big growth rate early on because you’re compounding off of very small numbers. I’ve never personally ascribed success to a number. It’s a trend. Things change so quickly these days. The whole industry could change in the next five years. Trump’s announcing some changes in the tax code. In the past changes in the tax code have not hurt the tax preparation business because every time they say they’re simplifying things, in fact they get more complicated. I wouldn’t want to put a stake in the ground and say this is where we’ve got to be. I think the important thing is you’re making progress on an annual basis and growing. I’d rather see profitable growth than growth for growth’s sake. I’ve seen plenty of people in this industry just open lots of stores because they think that’s a metric that matters. Profit and cash flow are always a lot more important than the number of stores.”

Costanz said this is his first time using a crowdfunding site like Wefunder to raise money for the company. “We chose to do it for a couple of reasons,” he said. “First off, it gives us the ability to continue to grow our brand awareness. Secondly, it’s giving us another opportunity to add on more franchisees and independent contractors. So we’re utilizing it to both raise capital as well as to add to our base of partners across the country. Finally it enables us to set the terms in a much less intrusive way than maybe a VC who would come in and kind of dictate to us exactly how the company is going to work in the future.”

In the meantime, his company has been building its presence online and growth over last season. “We’re excited that we have people joining us now for the next tax season,” said Costanz. “We’ve actually closed a number of franchise deals prior to the end of this tax season, which was interesting how excited people are. And we’re looking to continue to grow our business and develop a platform that in our eyes is a much better way to file for most middle-income Americans.”

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