From success to distress
Founded in 2015, Art Money built a successful business connecting art lovers with their dream pieces. Using an innovative payment model, where buyers pay for art in interest free instalments over 10 months, its focus is on making art more accessible to a broader audience. Art Money partnered with prestigious galleries worldwide, facilitated millions in sales and secured substantial debt financing.
Whilst garnering impressive growth, profitability remained out of reach. Economic conditions shifted, with rising interest rates and reduced consumer spending weakening demand, compounded by increased costs in capital. Confronted with these challenges, Art Money encountered a cash flow crisis, resulting in the start-up pressing pause on operations.
As businesses battle against some of the toughest conditions seen in more than a decade, this situation reflects the challenges many SMB owners in the fintech space face, as well as those operating with a BNPL model.
5 key takeaways to cushion against tough times
Profitability vs growth: Art Money’s journey raises an important question about the sustainability of growth without profitability. Despite achieving rapid expansion and securing high-profile partnerships, translating growth into sustainable profits when scaling fast and without a clear path to financial stability is a significant risk.
Double-down on financials: If you’re growing at the expense of profitability, consider adjusting your strategy. Be sure to monitor key financial metrics regularly – including profit margins, cash flow and debt levels – to ensure growth is not at the expense of long-term viability or heavily dependent on external financing.
Funding considerations: Whilst securing $100 million in funding is a huge achievement, it doesn’t necessarily guarantee success. The type of funding (and its terms) can significantly impact your business’s flexibility and resilience. Therefore, consider diversifying your funding sources. A mix of debt, equity and revenue-based financing can create a more robust financial foundation.
Customer relationships: Art Money’s model resonated with art lovers and galleries. This connection is a valuable asset, especially during challenging times, fostering both an appreciation of art and community. Nurturing your customer relationships is essential to driving loyalty and trust. Further, customers are an invaluable source of additional revenue (by way of referrals), advocacy and valuable insights.
Regulatory awareness: Operating in the financial sector and adopting a BNPL model necessitates navigating complex regulations. Compliance builds trust and supports longevity, ensuring your business remains resilient in a competitive landscape. Stay informed about regulatory changes and view this as an investment in
Challenges and opportunities for Australia’s BNPL sector
Art Money’s situation is not uncommon. The BNPL sector – one of the fastest growing fintech sector segments in Australia – has faced significant headwinds in the last couple of years with increased regulatory oversight, as well as the post-COVID-19 economic impacts of reduced consumer spending and shifting spending habits – with companies like OpenPay, for example, encountering similar issues. Even large players like Afterpay have reported significant losses.
Start-ups operating in the BNPL sector also take on significant credit risk, as financially strained consumers struggle to manage their payment obligations. While BNPL providers have taken steps to remediate this, through tightened credit policies, enhanced risk management and provisions for bad debts, the current soup of economic headwinds intensifies a business’s credit risk.
However, some positive signs do exist. Zip Co’s recent achievement of attaining monthly profitability in key markets – implementing several strategic initiatives, including cost control measures, expanding product offerings and focusing on growth in core markets – suggests that well-managed BNPL operations can succeed.
Your business legacy: real experience when you need it most
The challenges faced by Art Money and others in the BNPL space provide opportunities for learning and growth.
Staying vigilant, adaptable and true to your vision will help you build and grow your business. Your company isn’t just a source of income; it’s your lasting contribution to the business world.
Thoughtfully consider what steps you can take today to ensure your business thrives in the face of challenges and seek help early – before the warning signs of cash flow problems arise.
At AVA Advisory, we understand the unique challenges start-up founders face, particularly in the fintech sector.
Our team of corporate restructuring specialists and commercial advisors – who are founders and entrepreneurs themselves, with direct experience in starting, scaling and exiting businesses – offer expertise in:
- Financial restructuring: We help reassess business models and financial structures to enhance sustainability and profitability.
- Insolvency advice: We provide guidance on options when businesses face severe financial pressure, providing customised solutions aimed at business continuation and potential future growth.
- Debt advisory: We assist with creditor negotiations and developing strategies to manage and reduce debt.
- Corporate advisory: We offer strategic insights to inform decisions about your business’s future, whether that involves growth, consolidation or changing direction.
- Business mentoring: We empower business owners beyond transformation to elevate your position and profit potential.
Your business’s next chapter awaits.
Gain the financial insights and strategies your business needs to succeed.
Get in touch with AVA Advisory today call 1300 181 220 or book a confidential, no-obligation consultation through our online platform.
