When Nick Rizzi set out to become a tax preparation business owner, he figured he would buy into one of the established franchises. What the Brooklyn entrepreneur did not anticipate was getting locked out by defunct area developers who owned the rights to his neighborhood, but couldn’t afford to fulfill their development deals.

Back when the economy was thriving, seasoned franchisors like H&R Block and Liberty Tax Service sold area development deals to franchisees who, at the time, were on track to make good on their promises to open multiple units in a given market. But now that the economy is lagging, Rizzi’s Brooklyn community is over-saturated with development deals and under-saturated with actual establishments.

Rizzi saw the demand for his services, so he decided to bypass the big guys and launch his own business: Smart Tax. Unlike the national brands in his market, Rizzi knows his community well and has succeeded in taking market share from competitors who are less familiar with his market’s needs. After launching his start up as a franchise in November 2009, Rizzi now has 25+ locations open for tax season 2012. This tax season, Smart Tax opened 4 new locations: Brooklyn, NY; Hewlett, TX; as well as Cortland, OH and Lowell, MA.

This is a guest post by Nick Rizzi, CEO of Smart Tax.

When I founded Smart Tax in 2005, I built the company on knowledge, experience, and training from years of hard work in financial planning and taxes. Because I require high levels of expertise throughout my franchise organization, I have always sought out the top candidates to offer quality service to our customers, but now I’m taking it a step beyond that to find the best of the best.

This year, I have introduced incentives to experienced tax preparers (who have filed more than 250 returns) looking to get into franchising. While many competitors in the industry offer conversion programs, very few waive their franchise fee, and if they do, will usually charge around 150 to 200 percent of the franchisee’s earnings to make up for it.

At Smart Tax, not only do we waive the initial franchise fee ($20,000) for quality tax preparers, we only charge them half the royalties we normally do. While we usually charge 20 percent for royalties, if a top-notch franchisee brings in a conversion, we would charge only 10 percent for the first year in business and 15 percent for the subsequent years.

To further incentivize experienced tax preparers, if they have completed more than 500 returns, we give them a second territory free of charge and lend them $20,000 to open the location.

So how do you know when it is the right time to alter your business model? When the goal is to attract “cream of the crop” franchisees for long-term success, you can afford to put up more financial resources on the front end.

My decision to alter our business model enables us to invest in valuable, seasoned professionals who are experts in the field, so we can continue to build on our successful reputation as the best in the business. Seeking out these professionals is extremely important, especially in offering our services in the off-season, which include back taxes and bookkeeping.

By reducing the start-up costs of running a franchise, we want to price it right for superior candidates and help them on the front end to get their business ready to take on our growing customer base. It also allows us to really market our franchise opportunity, especially after we’ve grown from four successful operating locations to a projected 100 locations set to open by January 1, 2013.

Just as we do for our clients in offering a quick and hassle-free way to file taxes each and every year, we want to make the franchising process as smooth as possible to create long-lasting, successful franchisee relationships and build upon our growth.

Aside from franchise incentives for experienced tax preparers, Smart Tax also offers an installment plan to appeal to a broader spectrum of entrepreneurs. Franchisees are able to pay half the franchise fee upfront and the second half after their first tax season in business.  An entrepreneur can be up and running for as low as $36,000 in total investment.

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