The tax man cometh

Hamburg high grad tries to build largest tax franchise

The Buffalo News

Oct. 13, 2003

News Business Reporter

John Hewitt makes no bones about it: He likes talking about himself and his company, Liberty Tax, more than anything.

"I'm a shameless self-promoter. Probably one of the biggest you'll ever see," said Hewitt, taking a break from an order of Duff's chicken wings, ordered hot, and from explaining his firm's success.

"Sometimes I go a little too far, but if you're not out there pushing yourself, pushing your company, you shouldn't even be in this business," said Hewitt.

Since graduating from Hamburg High School in 1967, Hewitt, 54, has thrown himself at the tax service business three times, been bruised twice, and come back each time with a simple, ambitious plan: to be the No. 1 tax service franchise in the world.

Hewitt's Liberty Tax Service, which Inc. magazine ranked 106 on their 2003 list of the 500 fastest-growing private U.S. companies, has grown to 919 franchise operations in the United States and Canada since starting in 1997, with roughly 300 of those added in the last year.

He aims to double his company's size to 1,800 in about two years, then do it again by around 2008 with 3,600 operations. His return to Western New York last weekend was all about building franchises: holding a job fair to recruit new ones, and attending a training session in Niagara Falls, Ont., to meet 12 new ones from Canada.

"The most important asset we have is our franchises. I meet every one of the owners. I go to the training sessions to offer advice, and they can never say they didn't get any questions answered. I'll answer anything," said Hewitt.

Even if Liberty Tax grows to the sizes he envisions, Hewitt said he doesn't fear losing touch with franchises, or growing too large too quickly.

"The biggest thing I fear is that I won't be No. 1," said Hewitt. "Do I really want a gravestone that says, 'No. 2 in the tax business?'"

Hewitt knows his competition well. In his second year at the University at Buffalo, he took a tax course offered by H&R Block, and eventually left school to take a position in a local office. After 12 years at the firm, he was promoted to regional director, the youngest the firm has had.

Hewitt saw promise in the early-model Apple personal computer his father purchased, and with him developed one of the first tax software programs for PCs, "Hewtax." He pitched it to H&R Block, they turned him down, and Hewitt left to build the small accounting firm that would become Jackson Hewitt Tax Service.

In 1996, after 14 years at Jackson Hewitt, stockholders began looking to sell the company, while Hewitt wanted to continue building. He was forced out of his CEO position that year, and after receiving 5 percent of the firm's $483 million sale to Parsippany, N.J.-based Cendant Corp., left to start his own firm.

A non-compete agreement kept him from opening any tax firms in the United States., so Hewitt started Liberty Tax in nearby Canada. After his agreement expired in 1999, he began operations in the states, with Buffalo serving as one of the first focus areas for his business.

Dannalee Saunders was one of the first to open a U.S. Liberty Tax office in 2000, and now operates two locally. Although her "trial period" during the first tax season was trying, she said, the close communication between Liberty's management and its franchises is its strongest marketing tool.

"Once a week, all the franchisees can join in on a conference call with John and others. He takes a ton of questions from people all over," said Saunders. "Everybody buys into Liberty because of John. Otherwise, we'd go with another firm, or a mom-and-pop tax office."

Liberty Tax, headquartered in Virginia, is still relatively small compared with its competitors: H&R Block has more than 8,000 U.S. offices, and Jackson Hewitt around 2,700. But Hewitt points out that Liberty has grown many times faster than H&R, Jackson and others did in their first six years.

Linda McDougall, vice president of communications at H&R Block, said in a written statement that smaller firms like Liberty are not factored into the company's marketing efforts.

"Our marketing is not aimed at smaller competitors, but rather at demonstrating how H&R Block, as the country's largest tax preparation firm, can help Americans not only with all of their tax needs, but also with their longer-term financial goals," said McDougall.

Hewitt believes he has in fact gained the tax giant's notice, evidenced by a 2000 lawsuit he won in Virginia against H&R Block for false advertising, targeted at Liberty's focus market, for $800,000.

Hewitt said he's being courted by investment firms to take Liberty Tax public -- something he'll consider when the economy improves a bit more -- but he holds enough stock in Liberty that he can't be bought out again. He also said he plans to keep listening to young franchisers, who might see things the higher-ups can't.

"It's a simple motto I work by: If it ain't broke, break it," said Hewitt.