The Beginnings of H&R Block told by co-Founder Henry Bloch



Henry Bloch [Photo from Kansas City Public Library]

Often times your greatest achievements and breakthrough moments will occur with relationships or opportunities that you were about to give up on, but you went back one more time. The “trying one more time” can come in the form of perseverance or sometimes it occurs through being open minded with a little dose of luck. I was reminded of this in the excerpt below where Henry Bloch talks about the beginnings of H&R Block. In the 1950’s he and his brother came very close to shutting down their tax return business, a business that 40 years later would dominate the North America tax return market.

The excerpt below is taken from a 1991 interview with Henry Bloch that Andrew Lanyi conducted and included in his book, Confessions Of A Stockbroker:

It happened in 1945, right after World War II. At the Harvard Graduate Business School I read the transcript of a speech by Professor Sumner Huber Slichter gave to insurance industry executives. His message was: if insurance companies really wanted to help the country, they would invest some money in business, particularly in small business.

I made an appointment with Slichter and asked him what he thought of the idea of starting a business to help small business. He said it made sense.

My brothers and I put together a plan. One idea was to prepare customers’ income tax returns; another one was to keep their books. We rented an office for $50 a month and went around to a number of small businesses trying to sell our services; some different services, like temporary help – this was way before the day of temporary help companies – also window dressing, decorating, advertising, insurance, legal work, and all kinds of investments; all types of help that they might need around the company.

I thought we could subcontract this work once we had the clients. We were very young and every time we got close to signing somebody, the potential client said: “Well, would you give me some references? I would like to know what kind of a job you do for your other clients.” Of course, we had no other clients. We had no clients whatsoever. So, they would say: “Well, when the business gets bigger, come back and see us again.”

We had no capital at all, so we decided to visit a wealthy great-aunt in New York City. She donated a lot of money for all kinds of charitable projects, and my brother Dick and I went to her to ask if she would give us a $50,000 to start our new business. We met with her thinking that she was so wealthy – she lived in the Waldorf Astoria Tower, had an entire floor there – we thought that she would be happy to help us.

“No, I won’t give you $50,000 – but I will loan you $5,000?” We decided to return it. We were able to return the money, not because business was booming, but because we played a lot of bridge, and we put our bridge winnings into the company. Leon quit the business; he’s a lawyer today. Our father was a lawyer, too.

Eventually someone called and said: “I have a brother who has a hamburger stand. Would you be interested in helping him with his bookkeeping?”.

And that’s what got me started. At once I was in the bookkeeping business – nothing else. Through word of mouth some other people got interested; I went out and called on these little companies and kept picking up bookkeeping until the business got to be more than I could handle by myself.

I told my mother; “I have to hire somebody else; I’m going to run an ad in the newspaper.” She said, “I know whom you should hire!,” and I said, “Whom?” and she said, “Your brother Richard.” “I can’t afford to hire Dick, he’s married.” I was single at the time. “I couldn’t pay his salary”. She said, “Well, I’ll pay part of it.” “Oh, I would let you do that.” Dick joined me, and about a year later we became partners.

In addition to the bookkeeping, we were also doing a lot of small businesses’ employees’ tax returns. We were in a high-rise office building in Kansas City, and the owner had asked us to put a sign in the lobby, that we would do the income tax returns for people in the building – and we ended up doing so many income tax returns that we had no free time left. We worked seven days and seven nights a week. By this time, we had a few women working for us, doing the accounting.

The business kept growing until nine years later, in 1955, we decided to quit preparing tax returns. We wanted to get out of the income tax business, because at this time we were so busy with our accounting work, doing corporate and partnership returns and sales tax and excise tax and monthly financial statements, that we didn’t’ have time to do individual tax returns for non-clients.

There was a client of ours John White, who worked with the Kansas City Star, the newspaper here, as a display advertising salesman. We had done his tax return for years. He suggested that before we get out of the tax return business, we try to make a business of it. Exactly the reverse of what we planned!

He came up with an ad, two columns by 5”, saying we offer income tax preparation for $5; that’s all we were charging at that time. I asked him how much the ad would cost, and he said $100. I thought, “Well gosh, we’d have to do twenty returns just to get our money back.” And then he said, “No you’d have to run at least two ads, because one ad won’t prove anything.” “Well then, we’d have to do 40 returns!” Dick said, “Oh, let’s take a chance, what can we lose? We could only lose $200”.

So we ran those ads and business came in immediately. In fact, that first day, while I was picking up our client’ checkbooks, Dick called me and said, “Get back as soon as you can; we have an office full of people.” We made $25,000 in 1955, our first year.

H&R Block would go public on February 13, 1962 at $4.00 per share (sold 75,000 shares). If an investor would have invested $10,000 in H&R Block when it went public, by 1991 (time of the interview above), the total value of the stock and dividends together would have been over $12 million.

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