In this franchise red flag review session, today we’ll focus on Estrella Insurance. Now, Estrella Insurance is a property and casualty insurance franchise. They offer a wide range of insurance options to their clients. But their focus is on car insurance. They’ve been in the market for over 40 years. Let’s take a look!
My name is Jack Findaro. I’m the co-founder and managing partner of Visa Franchise and Vetted Biz, where our focus is on the franchise industry, franchise investments. And before starting these two ventures, I worked at Restaurant Brands International, which is the owner of Burger King, and Popeyes, and Tim Hortons. I worked in global development and global finance before founding Visa Franchise and Vetted Biz base.
Now, with our red flag review, we always look at the franchise’s founding date. In the case of Estrella Insurance, it was founded in 1980 with its first offices. And as of April, 2021, they have over 150 offices all across the United States. That’s a very good sign. It shows continued growth over a long period of time.
Now, we look at item three, which is Litigation, and item four, which is Bankruptcy. These are both disclosure sections of the Franchise Disclosure Document. And also, for Estrella Insurance Franchise, we didn’t find any issues. There’s one ongoing litigation which we didn’t believe warranted any major red flags. And then in terms of bankruptcy, they had no disclosures. And these are both good signs, especially for a franchise that has been in business as long as Estrella.
Next, as part of our red flag review, we look at item six, which is the Other Fees of the franchise, and item seven, which is the Investment Breakdown. In Estrella’s case, their royalty rate is between 10% and 14%, which, at the face of it might seem like it’s a high amount for the franchise industry, which it is, but when you look at its subsection of insurance franchises, which have a different type of business model as any other franchises in the franchise industry, when you look at the royalty rates compared to other franchises that do insurance in the franchise industry, it’s actually pretty in line.
In this case, we didn’t see any red flags there. And then also, in terms of item seven, we see that their investment breakdown goes from about $65,000 up to $125,000, and that’s highly dependent on location.
And for us, we see this as a very attractive price point for someone looking to open up one, or two, or many more insurance agencies under the Estrella Insurance franchise model.
In item seven, Investment Breakdown, we see that it goes… the range is on the lower end, about 50,000, all the way up to 125,000 for one location. We see this as a very attractive price point for a potential investor or someone that would potentially do one or more franchise insurance agencies. That’s why, for us, this didn’t bring any red flags..
Next, as part of our franchise red flag review snapshot, we always look at the financials of the corporate of the franchisor. Now, in this case, it’s Estrella Franchising Corp. We were able to take a look at their profit-and-loss statement for the most recent year, as well as for their balance sheet. Both are disclosing their franchise disclosure document.
In terms of their P&L, the profit-and-loss statement, there are actually no red flags. They have a very strong, robust franchise system, which is very good for potential franchisees that might be worried that the franchisor will go out of business. In Estrella’s case, they look very good, and the vast majority of their income is coming from royalties, which is always a good sign in our book, which means that they’re making money when their franchisees make money.
Then, the other item that we looked at was the balance sheet for the Corp. And for us, it actually had no red flags on our end. They’re not over-levered, they haven’t taken on too much debt, which is an issue that we do see with some franchises, particularly ones that maybe not doing so well, they’re trying to grow really fast and taking a lot of debt. But in the case of Estrella, we didn’t see that as an issue.
Therefore, with that, that’s our red flag review snapshot of Estrella Insurance Franchise. My name is Jack Findaro. I hope you found it informative. If you’d like to learn more, please visit one of our websites Visa Franchise or Vetted Biz.
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