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H&R Block Franchise Closed 700+ Franchises Over Past 3 Years (2022)

Written by: Parth Parth
Last Updated by Facundo Bermudez: September 19, 2022
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This article is based on its 2022 FDD. 

Table of Contents

H&R Block Franchise is a tax preparation company that operates in Canada, the USA, and Australia. The company was founded in 1955 by brothers Henry W. Bloch and Richard Bloch. It had 9,361 units as of the end of 2021.

How Much is an H&R Block?

The initial H&R Block Franchise Fee is $2,500. You have to pay this upfront fee when opening an H&R Block franchise.

H&R Block Cost

The estimated total investment necessary to begin the operation of an H&R Block Franchise ranges from $31,557 to $157,898. The following costs are part of the upfront costs included in the initial investment for an H&R Block. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy an H&R Block franchise in 2022.

H&R Block Franchise

Estimated Initial Investment 

Owning an H&R Block Requires Ongoing Fees

Royalty: 60% of the first $5,000 of revenue received by the Franchised Business during each calendar year for Authorized Services, less applicable sales taxes collected and remitted to appropriate taxing authorities, and less revenue from the sale of products or services subject to a Product-Specific Royalty Rate, incentive rates paid to Franchisee, or otherwise designated as royalty-free (50% if paid within 4 days after the end of the Reporting Period to which the royalty relates and no other amounts payable are overdue) and 40% on the revenue received during each calendar year in excess of $5,000 (30% if paid within 4 days after the end of the Reporting Period to which the royalty relates and no other amounts payable are overdue). 

However, revenue in any calendar year that is in excess of the average revenue of the Franchisee for the 2 previous calendar years is subject to a Royalty Fee of 20% if paid not later than 4 days after the end of the Reporting Period to which the royalty relates.  You are not eligible for the 20% royalty rate (the “Incentive Royalty Rate”) until you have completed 2 full Tax Seasons and have established your own incentive base. Revenue from business services is subject to a Product Specific Royalty Rate of 15% (10% if paid within 4 days after the end of the reporting period to which the royalty relates and no other amounts payable are overdue).  Revenue from fees charged for a Second Look review is subject to a 20% Product Specific Royalty Rate.  Revenue from the sale of certain products is royalty-free.

POM Extended Service Plan and POM Protection Program

The Peace of Mind® Extended Service Plan (“POM”) is a required service, and you must participate in the POM Protection Program.  Each POM unit sold will be subject to both a 20% Product Specific Royalty payable to us and a designated-premium charge.  Claims are subject to a $50 deductible per claim only after notification of claim approval.

How much do H&R Block franchise owners make?

2021 H&R Block Average Unit Volume: $130,661

Type of Expenditure New Outlet Amount To Whom Payment is to Be Made
From To
Initial Franchise Fee $2,500 $2,500 Us
Real property (Estimated Cost total is for three months) $1,400 $30,000 Landlord
Leasehold improvements; construction costs $0 $50,000 Contractor
Signage $1,200 $6,500 Us, carrier, and installers
Furniture, Fixtures, Decor items $15,000 $30,000 Suppliers
Equipment $8,000 $12,000 Suppliers and us
Opening $500 $1,000 Suppliers
Pre-opening salaries, travel, and initial training $1,500 $3,000 Suppliers of transportation, food, and lodging
Start-up suppliers $500 $500 Suppliers and us
Insurance $477 $798 Affiliate Insurers
Zoning Expenses $0 $500 Various government entities
Utility deposits $50 $300 Landlord, utility companies
Architect design $0 $4,500 Architect
Professional fees $0 $2,500 Professionals
Additional Funds $430 $12,000 Various
Applicable business licenses, if required $0 $1,800 Various government entities
TOTAL $31,557 $157,898
Initial investment (midpoint) %Profit margin of median franchise sales Estimated Profits Time to recoup investments
$94,727 25% $32,665 5.5 years
30% $39,198 5 years
35% $45,731 4.5 years

Based on the median sales provided by H&R Block’s franchise locations, at an average of a 30% profit margin, it will take around 5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 30% profit margin, which would elongate getting a return on your investment.

 

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Tax Prep locations; the extent of market penetration and brand awareness that H&R Block stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the H&R Block Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for H&R Block franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Estimated Selling Price = Net Sales * 0.86.

When you go to sell an H&R Block franchise based on the median multiple of .86 and AUV of $130,661, it would sell for $112,368. This is higher than the midpoint investment of $94,727.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

H&R Block Franchise

H&R Block (Franchisor) Income Statement Key Insights:

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Years ended in April 30,
2021 2020 2019
REVENUES:
Service revenues $3,067,223 $2,327,323 $2,691,727
Royalty, product and other revenues $346,764 $312,397 $403,154
$3,413,987 $2,639,720 $3,094,881
OPERATING EXPENSES:
Costs of revenues $1,842,092 $1,712,276 $1,756,922
Impairment of goodwill $106,000
Selling, general and administrative $802,268 $744,361 $722,167
Total operating expenses $2,644,360 $2,562,637 $2,479,089
Other income (expense), net $5,979 $15,637 $16,419
Interest expense on borrowings ($106,870) ($96,094) ($87,051)
Income (loss) from continuing operations before income taxes (benefit) $668,736 ($3,374) ($545,160)
Income taxes (benefit) $78,524 ($9,530) ($99,904)
Net income from continuing operations $590,212 ($6,156) ($445,256)
Net loss from discontinued operations, net of tax benefits of $3,883; $4,085 and $6,788 ($6,421) ($13,682) ($22,747)
NET INCOME (LOSS) $583,791 ($7,526) $422,509
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $3.11 $0.03 $2.16
Discontinued operations ($0.03) ($0.07) ($0.11)
Consolidated $3.08 $0.04 $2.04
COMPREHENSIVE INCOME (LOSS):
Net Income (loss) $583,791 ($7,526) $422,509
Change in foreign currency translation adjustments $56,362 ($31,160) ($6,113)
Other comprehensive income (loss) $56,362 ($31,160) ($6,113)
Comprehensive income (loss) $640,153 ($38,686) $416,396

H&R Block is a very profitable business for the franchisor with retained earnings of $640.15 million in 2021. Compared to $416.39 million in 2019, they saw an increase of 53.73% from 2019 to 2021. This is a good indication of high growth as a company overall.

How many H&R Block units have opened and closed?

Outlet type Year Outlets at the Start of the Year Outlets at the End of the Year Net Change
Franchised 2019 3,345 3,136 -209
2020 3,136 2,886 -250
2021 2,886 2,752 -134
Company-Owned 2019 6,761 6,388 -373
2020 6,388 6,590 +202
2021 6,590 6,601 +11
Total Outlets 2019 10,106 9,524 -582
2020 9,524 9,476 -48
2021 9,476 9,361 -115

Over the last three years, the company has been in decline. Both franchising units and company-operated stores have decreased. Over the last three years, franchises have closed at a rate of around 198 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up, and they are not renewing it.

Conclusion

H&R Block offers people the opportunity to be a part of a business that is never going to close, as taxes are one of the few things in life that are sure. However, it needs to be looked into why so many franchisees are leaving the system, as it is clearly not a COVID-linked thing.

While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Professional Business Services Industry.

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