Recession Proof: Not Tax Preparation Services

The Wall Street Journal ran an ad headlined "Recession Proof."  The ad was for franchising tax preparation services.  Seems reasonable, right?  Everyone has to file a tax return, even during a recession.  Well, it turns out that they don't have to pay someone else to do it.  In the average recession, consumer spending on tax preparation services drops 14 percent from peak to trough (inflation-adjusted and seasonally adjusted).  The average recession lasts 15 months in this industry, from peak to trough.  After the trough, it usually takes another 24 months to regain the previous peak level of spending.  That's not recession proof in my book.  Here's an example from the 1980 recession:

My purpose is not to trash this franchise opportunity.  It may be a great business, all things considered.  However, claims of being recession proof are most often wrong.  Take them with a grain of salt until you've looked at the data.

Comments

[ronin]

OK, I'll trash this investment opportunity.

In my experience, tax preparation is a repeat business which you build up over time, etc. The exception is in areas where there is a lot of population turnover or new development. What are they offering to add value- research in locating franchises, advertising, etc? If-you-build-it-they-will-come will not work as a strategy.

Not to mention the seasonal nature of the business. Are you going to make enough to support yourself the rest of the year, or do you have another line of business to fall back on?

[Robert Donlon]

I opened a new business this past year. One of my greatest expectations of the tax season was the demand for the services. With all of my advertising efforts I had a very slow tax season. If I did not provide other services throughout the year I would not have survived the first year. I am sure that as my business grows through the years that the tax preparation services will increase the bottom line of my business and create a recession resistant source of income. I understand the premise that was presented by the ad as they were promoting the increase of consumers trying to save every penny they possibly could. With that in mind the consumer would also look to less expensive means to prepare their taxes(online and software)as opposed to going to a professional. This is clearly demonstrated in your chart. With all these consumers utilizing the over the counter and online products I predict an increase for tax preparation offices in creating ammended returns.