 Welcome everybody. My name is Jill Griffin and I'm Director of Workforce, Supplier and Diversity for the Massachusetts Gaming Commission. Welcome to our first webinar, Managing Cash Flow During Crisis. Earlier this year we partnered with LEAF Local Enterprise Assistance Fund to offer technical assistance to rapidly growing small businesses that were providing goods and services to the casino and the horse racing industry. As many of you had to do, LEAF pivoted to offer virtual group assistance through webinars and remote one-on-one business counseling through our grant. Before I introduce our featured speaker I'd actually like to turn it over to Commissioner Bruce Stebbins of the Massachusetts Gaming Commission to kick us off. Great, thank you Jill. It's a pleasure to be here on behalf of the team at the Massachusetts Gaming Commission and my fellow commissioners. I want to thank you for joining us this morning. Obviously these are unprecedented times and please know that you your employees and your families are in our thoughts and we hope everyone remains safe. It's great to have so many of you joining us today. I want to simply thank our MGC team of Jill Griffin, Crystal Howard, Lane Driscoll, Sharra Badar, Tanya Perez and Austin Bumpus for their work and pulling this webinar together with our partners at LEAF. We're very excited about this partnership. LEAF has over 30 years of experience in investing money and leveraging financial resources that has helped them be part of the creation of more than 10,000 jobs. Obviously if you're a company that was doing business with a gaming licensee or you're a company seeking a business opportunity with them when they reopen I'm certain that this webinar will be helpful and we certainly invite your comments or feedback at any time by using our contact page at massgaming.com or you can email us at MGC comments at massgaming.com. So thank you very much Jill. Thanks to all of you for joining us and I will turn it back over to you. Great and then our featured speaker, Amin Benali, Managing Director of Strategy and Development for LEAF. Amin has experience in financial analysis with investment management. He joined LEAF after 19 years as an investment analyst and portfolio manager focusing on emerging markets. He's also a professor at Northeastern University of focusing on entrepreneurship and social finance. He is a BA in finance from Northeastern University and masters in economics from Boston University. I'd like to turn it over to Amin Benali. Thank you Amin. Yeah thank you Jill. Thank you Commissioner Stebeden. Thank you to the entire team at the MGC for the opportunity to partner with you for the crisis and certainly during the crisis and you know we hope to be of help and service to you and to the businesses that are affected. We have we have a presentation with several slides to go through and I would go through some fast some slow and encourage everyone to participate via the chat room if you have questions or comments and I would address them and I'm sure we'll open the presentation after after the slides for Q&A and happy to to go into detail at that point. Very briefly you know as Jill mentioned LEAF is a CDFI Community Development Financial Institution specifically it's a loan fund it's been providing financing and development assistance to small businesses since 1983. So Jill was kind of to go through my background so I won't go through that and the agenda that we have today is we want to briefly describe the economic context that we're going through at the moment. Everybody knows we're in contraction everybody feels it and we'll just want to set the stage for discussion around how to manage the business finances during the contraction and then we'll pull in a case study sometimes it's useful to give a real example. This is not a real-life example but it is a collection of the experiences that we have gone through over the last several weeks and we put them into a hypothetical example still coming from the real world and then we won't talk about the post-crisis environment this is going to pass we're going to come out of this it's good to see the establishments speak about reopening the economy and it's good to keep an eye on the pre-opening phase and what happens after that. So briefly on the economic context you know we are going through a contraction typically the way things happen is the economy expands we get to a peak performance and then for a number of reasons that generally are internal to the economy it begins to contract the growth slows down sometimes that's driven by the inability to find labor wages are too high sometimes the inflation's get out of hand a number of things happen that caused the economy to begin to contract and that's the left-hand side of that graph you're seeing there that's a contraction and then we hit a trough of autumn and then we start to recover from that and after we recover to the previous peak we get into a prosperity phase and then we hit that plateau again and the economy slows down and the cycle continues it's normal there's nothing unusual about contractions there is something slightly unusual but the the current experience if you look at this slide here this is the economy since 2009 remember 2009 that was the great financial crisis and you know we have had about 10 to 11 years of expansion pretty solid economy and generally those cycles last anywhere between four to six years so 10 11 years you know is a long time and I think the majority of the people were expecting some kind of slowdown certainly we were not expecting a shock or a pandemic to cause it the way it did but but that being said it was in the cards and it's been accelerated so the you know what we're looking at here is you know some uncertainty about the recovery how deep this recession is going to go how long it'll last we don't really have a lot of insight into that and and this month and next month certainly where the company is reporting their earnings we'll have their clarity and we'll be able to understand better but one thing is clear is you know this is going to pass and businesses definitely need to keep an eye on that recovery and what happens post the crisis the playbook doesn't change managing during the contraction is the same this time around though they would just need to accelerate and businesses have had the fortune to accelerate a lot of the adjustments that they needed to know how do you manage your finances during the contraction there are two parallel paths most companies have to take the left-hand side deals with preservation and stability of the business generally that takes about 90% to 100% of the time of business managers entrepreneurs you know at this time you're concerned about cash you're concerned about you know clients are cancelling orders etc so there is a lot happening and there's a lot of crisis management that being said crises also create opportunities and to the extent that companies have been reviewing the strategies pre the crisis they need to be able to allocate some time during the crisis management to also be thinking and we'll go through some of that as well so so to parallel path we spend probably the majority of the time talking about preservation and stability because that matters a lot more right now but we want to make sure that we save some time to talk about the strategy for future excuse me so contraction versus expansion and here we are talking about the economies you know during the contraction you know generally preserving cash is a priority it should be a priority at all times but during the contraction it is much more vital because it can create existential challenges when it's not there so what that means is you know you need to look at your balance sheet every business owner has to cut balance sheet if they haven't in the past then that should become part of the norm that that's something they review frequently and as you review your balance sheet you also need to be looking at your operations and what generates cash flow for you and rebuilding your budgets constantly reviewing them and doing scenario analysis so that you can you want to be on top of what's happening with your operations and what's contributing to cash drain and what's adding to your business still your balance sheet is your key statement at this point for analysis so what's in your balance sheet you know very clearly on the left hand side you have your assets so that's what allows you to produce so that's your cash that's your accounts receivable invoices that you haven't collected your inventory unsold products and finished products your equipment your machinery your office space whatever it is these are the things that are tying up your cash they allow you to produce products that you can sell but at the same time until you sell them they are not cash they're an asset but they're not cash so you want to pay attention to those and you want to minimize those as much as possible on the right hand side you have the capital that paid for those assets so you have debt or equity equity is what you brought into the business and these are the obligations financial obligations that can reduce your cash so your accounts payable is what you owe to your vendors and so to the extent that you have to pay that that that takes away cash from your balance sheet your bank loans your lines of credit alternative lenders any sort of loan that you have or financial obligation these are your obligations to pay which means they affect your cash in the negative way so what we're going to go through in this section right now is you know this preservation and stability what what are the steps that you need to take and the steps we're highlighting here we'll go through some you know obviously reviewing the loans and contacting lenders that needs to happen in order to give you some background around that what we call cash conversion cycles and it's just a fancy word for saying you know when you're looking at your accounts receivable you want to accelerate receipt of those payments to the extent possible and your clients are able to and when you're looking at your payables you want to prioritize how who you're paying and how you're paying and and and we'll go through some of that as well inventory is something that that also depending on how fast you can sell it can generate cash for you so anything that can convert into cash you want to reduce the cycle of that conversion you know asset sales will go through that as well and then I added an item that has come up a lot in conversation with some of the businesses over the last four year four weeks especially and that is reviewing your business interruption insurance and you know in most in a lot of instances that item was not covered in most policies but it is something worth reviewing there's really no downside to asking about that item because you know if in fact it was there then it could be very beneficial you know all of this you know with the spirit of keeping an eye on your balance sheet so we'll go through the three points in a little bit more detail you know you really review your existing financial facilities or financing facilities to make sure you understand how they can change as a result of this crisis to the extent you have loan documents you want to review them you want to check your covenants covenants are events that can trigger action and review sometimes for instance some lenders who require businesses to maintain profitability or profits that are two times the amount of their debt service in terms of interest and principle so we are going into environment where business activity has slowed where we're looking at lower profits potentially losses so you want to see how those effects your loans and your obligations and and going through your your your loan documents is is critical at this point you want to ensure that your lines of credit and your other facilities remain in place liquidity is key and liquidity is an only cash that's that you own in your balance sheet the credit is also what you can access in terms of financing from financial institutions as a result of that you want to keep communication with your lenders and you know as needed you want to discuss loan modifications what we have experienced over the last four weeks is several businesses that were very hesitant to contact the lenders and if they did it was within the context of asking about relief programs like the paycheck protection program and the ideal and they were there were so much this this nervousness about speaking about the business in a negative way because the feeling was that it would affect how the lenders view them you know the I can assure you that lenders want to hear from their clients and their borrowers especially going through this crisis it is expected that most businesses you know are facing some kind of financial challenges in the past it is possible that some of the lenders may not have wanted to have loans that were challenged in their portfolios they are regulated and so they are beholding to certain standards as well of quality in their portfolios however about three weeks ago the Federal Reserve issued guidance for the lenders and the Federal Reserve regulates the banks and the financial institutions and so and this is quoting specifically from their guidance memo the agencies view loan modifications as positive actions that can mitigate adverse effects on borrowers due to COVID-19 the agencies will not criticize institutions for working with borrowers and will not direct supervising institutions to automatically categorize all COVID-19 related loan modifications as trouble that restructuring for TDRs TDRs are something that lenders want to minimize so in this particular case what the Federal Reserve is saying is go ahead and and make accommodations to your borrowers and that will not count against you in fact you'll be viewed as a positive action so keep that in mind there is really no reason to to not want to contact your borrower if there were any concerns about how they will view your business you know the opposite is in fact true and it is true by guidance from the from the Federal regulators on this in terms of cash conversion cycles you know the key elements here are accounts receivable and accounts payable accounts receivable generally is an item that a lot of business owners don't don't pay a lot of attention to join expansion you know business is growing you know sales are happening the client book is growing fast and you know and you have a few clients that may not be paying on time or maybe instead of 30 days you're at 90 days you have to follow up with them it's a lot of work to follow up with them and it takes very little of your bandwidth you know so and sometimes it can it can get neglected this is the time to go back to your accounts receivable to your clients and get a sense of when you could receive some payments you might be dealing with some service aggregators some very large clients that have already announced that they are stepped they've stopped all payments make sure you contact them and see you know how that policy might affect you if there are any exceptions with respect to the service that you provide you know see if you can offer some discounts for earlier repayments to the extent you're able to you know in that case you're essentially financing your clients so that they pay you worry and you know and then the the ID here is if your business requires it you are accelerating the receipt of cash and the conversion of those invoices into actual cash the factoring is an option it may not work for every business especially at this time and it has a cost to it is not cheap but it's also something that that should be considered and there are factoring agencies that look at receivables and you know and we make proposals for how they would handle them and what do you get from them accounts payable is another important item in the balance sheet these are invoices that you owe services that were rendered to you and and products and parts that were supplied to you and you have to make payments on them and this is probably time where you need to see what the terms are what the agent of those receivables looks like and then begin to prioritize your payments to the extent you have to when you need to and and and these are some some some frank reviews that and that need to happen and and everybody's going through this so your clients are doing exactly the same thing as you would be expected to do with your vendors so call your vendors if needed negotiate payment plans as needed and and you know and see if they can offer discount for you to pay early to the extent your your liquidity position allows you to do that but these are some of the ways in which companies have been dealing with your with their accounts payable of all sorts over the last several weeks asset sales a lot of companies accumulate assets over time and some of those assets became known core or or not essential especially if some companies had a truck of fleets and they upgraded and they kept the old fleet in case you know as backup etc. and they were planning to sell those assets anyway so they were redundant you know are they needed do we need to accelerate the process of sale etc that's something that you know that that maybe you should accelerate to the extent you're able to and can and again all of this is with the idea and every business is is different in every situation is different but depending on the cash need and the critical need for that cash it might require some of these actions some of them could include asset sales and leaseback this is probably a much more dramatic course of action to take and it may not be ideal for everyone but it is something to review and all this really depends on the severity of the liquidity crunch that the companies could be facing so these are the the main highlights from the balance sheet balance sheet affects your cash in in in different ways as in sometimes it ties up your cash and sometimes it slows the pace of which cash comes into balance sheets so you need to be able to review that and and remove any friction in that conversion process your operations and your sales and expenses that's also where a lot of the adjustments the adjustments have been happening so review in your cost structure and I know most businesses have been doing that and have been forced into doing that because you know if you're carrying a high labor payroll business then you really have to you have been reviewing it and making adjustments as needed and we'll go through some of the items here including looking at your cost fixed and variable staffing decisions we'll give you kind of some of our own experience with this some alternative revenue sources companies have been very creative in coming up with ways in which they can they can sell and provide the services and products and receive payments for them and again building scenarios is critical you know most companies have budgets that they go through every two weeks every four weeks and you know this is one of those times where you know those scenarios have been those budgets have been need to be adjusted much more frequently so in terms of your cost structure every business has variable costs and fixed costs you know your variable costs will adjust with your business if you're selling more you're using more labor you're producing more you're you're using more parts you're delivering more you're paying more for fuel for tolls you know those are costs that are variable you know production labor delivery supplies if you share commercial space where you have to pay by the by the use hour you know that's that's a variable cost and those are very frustrating costs when times are good because you know your sales are going up and in the right-hand chart there you see the blue line that's your sales and then the red line that's your variable cost and you know it seems frustrating because no matter how much you grow your costs are growing with you and so the green sliver which is your profit always seems to be you know it's you know you won't be able to to expand it as you grow you know so those are those are frustrating during the good times but then during the time bad times they are your friends because as your sales and your business activity slows down and that's the blue line in the chart these variable costs will come down as well right so ensuring that you maintain some level of profitability right so you're using maybe less production labor less delivery labor now less supplies less shared operations time and all of that contributes to your costs coming down as your sales are coming down and these become your friends you know you you also have fixed costs in your business and these are costs that you have to pay whether you produce one item the million items or no items that's rent in some utilities insurance you know admin expenses these have nothing to do with your actual operations they maintain your business whether your volume doubles triples or halves or goes away completely and so they are usually your friend during the good times in that your sales are growing that's the blue line but the red line which is your fixed costs it's not growing and so you're you're benefiting from that top line growth it's all flowing to the profit line but when contraction happened and business slowed down and your sales begin to trend lower and your fixed costs are not changing then you know that the buffer that you had begins to shrink and that's something you want to pay attention to and you know most businesses that we work with we go through their line items on their income statement and your and their operations and budgets and categorizing in terms of fixed and variable so that they have a better sense of how they will what they will incur in terms of expenses and cash outlays in the next six months in terms of front and leaves we get this question a lot what do I do about that it's usually a fixed it's significant cost for many businesses and you know so we're not we don't have legal expertise so you know we we're not going to make recommendations you know some people say don't pay your rent early some people people are pushed differently our experience just from having spoken with several businesses that have had to deal with this clearly initiate a conversation with the landlord is critical I mean you have to talk to them second what we have seen is landlords have been able to accommodate their tenants you know because you know obviously they don't want to have empty buildings coming out of the crisis and every business that is saved during this crisis is a business that will come back and continue to be a tenant so they've been able to work with the businesses some of them have deferred all payments some of them have said look you know I have to pay mortgage on this property and therefore pay me just this much and then then we work out the rest etc so this has been a case by case and it's something that clearly we curse everyone to speak with the landlords but but you know you are not the only business that's a peer experience in this if you are I just put it on the right-hand side a clip from the Wall Street Journal that came out this morning that said that Tesla is also seeking rent savings from you know from their landlord landlords because of the crisis so every business is reviewing that that that cost item and it tends to be a fairly significant line item in every business income statement another question we got a lot is staffing decisions it's been about four weeks since all of this has started and so businesses I've already had to make some difficult adjustments you know but that being said you know we know that workers are critical to business they are probably the single single most valuable asset rehiring and training takes time and is very expensive you know so we work with some businesses where the the the service provision relies on technicians to go on site and so without technicians the business will be able to to handle the service requests and when first some of the business work with it took you know somewhere between you know eight or four to eight months to find the right technicians and experts and employees and hire them and they don't want to go through that process again so most companies are keeping their key personnel the ones that they're not able to keep I mean they're helping through you know through their support with with an employment etc so so there is support out there you know but these are some of the experiences that we have seen companies have been adjusting hours for all employees for low end employees and you know that the the paycheck protection program is designed to maintain staffing and so that provides some relief for businesses that feel as though you know they need to maintain their their staff and and the revenues and there to do that so that's something that's that most companies are looking at very carefully especially the ones that feel that they they need to maintain a large number of their staff alternative revenue sources this is really case-by-case depending on the product depending on the service depending on the industry we can't industry but and some of the points here you know you've seen already in terms of food service companies finding alternative outlets critical institutions still require food service hospitals healthcare facilities etc so that's that created a good channel for some businesses exploring different price instructors to incentivize clients to stay you know so some equipment sellers for example did not offer backpack options to clients and now they're doing it and even though it's not material to the clients cash flow at the moment or the buyer but just knowing that there's a backpack option keeps them involved and we've seen that especially from a lot of equipment manufacturers and car dealers alternative service delivery mechanism you know so if your business is is a knowledge-based business so whether it's consulting training education the the online platforms that have that have developed over the last several weeks clearly offer a way for for some service and revenue continuity revise your budget you know there this is something that should happen anyway at least once a month now probably happens a lot more times during one week order cancellations have already taken hold service interruptions stacking adjustments that you're making those affect your budget workouts and accommodations with your creditors those affect how much you have to pay for your debt service other sources of sales and cash including the relief programs so build different scenarios and and all of this is to make means that you have to be much more on top of your operations but also closer to your clients to understand what their circumstances are and how they see the world are we talking about getting back to some normal baseline by the middle of the summer by in the fall next year much earlier than that these are things that you can only get a handle on with conversations with your clients so what we want to do is go through an example because sometimes it's easier to go through a practical case and here we have an industrial services company as an example and they've experienced service interruptions or suspensions in mid-march where probably about 50% of the clients essentially said that they are not going to take on the service anymore and don't expect to come back until mid-summer so sometime July is when they expect to come back and even since from there it'll probably take you know three to six months for them to get to where they were in terms of business level before the crisis now all of this is hypothetical right but it's it's been informed by actual experiences that we have witnessed over the last four weeks so the business has had to make some adjustments in terms of staffing you know so truck drivers for example you know less routes less delivery so a lot of adjustments have been there they were able to cut some costs were possible in terms of marketing administration in general they were able to make some adjustments there and like every business in the country they they also are looking to benefit from some of these programs the paycheck protection program and the economic injury disaster loan so let's go through some of the numbers and and we make that probably one of the last points that we bring during this presentation so here these are some of the projections we helped them put together in February so this is before the crisis really too calm the scale that it took in March you know they were looking at existing sales at about one and a half million dollars you you know you throw in some direct labor some other costs of production and sales and then you get to gross profit or income of about nine hundred thirteen hundred fourteen thousand dollars and then you know you move down to some of the operating expenses you know SG&A payroll which is a selling general and administrative payroll by three hundred ninety thousand their rent and lease you know so which is still significant the insurance payments some other expenses all in all the business was looking at in the profit for twenty twenty about two hundred eighty thousand dollars after everybody's been paid and you know that's you know kind of a healthy margin for business like this in this particular industry so here we are again at the end of March having had conversations with with their clients and they realized that based on what they saw and they put in their budgets sales for the year would go down from one point five million dollars to eight hundred thousand dollars right so pretty significant drop in sales if nothing were to change right so if nothing changes and that's the column that we have on the far right then they would have been looking at a loss of negative four hundred and thirty five thousand dollars which would have been catastrophic for this business they're just wearing of reserves to be able to sustain something like that right but this is unrealistic right because you can't expect that there would not be any adjustments and what we're going to do is keep track of some of the changes in the right-hand side chart that we have there so we have initially expected loss without any changes and that's the red bar negative four hundred thirty six thousand dollars luckily for this business they were able to find some alternative sources of revenues that they expect will get them hundred and twenty five thousand dollars right so that already begin to chip away at that loss and that's kind of the the blue bar that you're seeing there it's just kind of adding incrementally adding about a hundred twenty five thousand dollars so that the loss now has been reduced from four hundred thirty five to five hundred thousand dollars this business is heavy on direct labor and direct cost of sales and so they were able to make some staffing adjustments on direct labor that saved them about hundred and thirty eight thousand for the year able to see some other cost adjustments for that for direct production and sales of 230 and you know so now you can see we're chipping away at the potential loss pretty aggressive right so there is it's reduced in that the potential loss by significant amount and they were able to make some adjustments to general administrative expenses rent they didn't change you know some changes to insurance largely due to how they manage their fleet and then some other expense adjustments that they made you know all in all you know they've been able to reduce the potential loss from and take it from a loss of four hundred thirty six thousand dollars to a loss of twenty six thousand dollars which is which is not unbearable right so it's something that they can manage especially if you consider that they'll be able to receive some of that relief program funding from the payroll protection program or EIDL then you would allow them to come out of this year you know with with a positive cash position not a negative cash position and that kind of goes into preservation and the stability theme that we have talked about so and this is something that we have helped businesses with and you know and we continue to help businesses develop so that they can have a better and a clearer understanding of what they need to do to preserve cash and to come out of this year with with a healthy cash position shifting gear a little bit we have to be thinking about the post crisis environment and we're only dedicating a small amount of time this is the whole theme by itself and maybe eventually we'll be able to develop that into its own presentation you know but you know this crisis will cause some dislocations I mean it will have some some impact that will last for more than just a few months it'll last for a long time so some suppliers you may not come back from this for a lot of reasons some of them in terms they just decided you know what this is this is time for me to go or some other reasons but you know that it could cause disruptions to your supply chain where you get your services where you get your your equipment your parts and something you want to look at because as you look in at how you manage your business post surprises your supply chain is important you know some clients may not come back and and that it would affect your market than your and your business book you know some some of the pricing and the revenue models we change you know some of your pricing schedules we change and and you want to be able to anticipate some of that and plan for it and plan for it away where you know you're not surprised but you're able to adjust your business so that it doesn't take away from your ability to to make a profit the labor market we change you know because the big dislocations companies are working very hard to keep their staff and if they can't they want to make sure that they keep in touch with them so that when when this thing passes and we're reopening that they have they will still be able to get them to come back and provide the work for them and that's very important and then importantly some competitors might not return some of the companies that you compete with might not return and some will be even stronger depending on how they manage during the crisis and so these are things that you want to keep in mind going forward and that goes into your strategy if you didn't have a strategic plan before it's probably a good time to start thinking about what sort of company and scale you want to have going forward and you know so strategic planning very important can you integrate some functions into your business which means can you buy some of these businesses at the same time saving the businesses but making sure that there's continuity for your own activities are there any roll-up opportunities out there competitors that are willing to or have been thinking about exiting but now this I have accelerated that so can you begin to merge the industry a little bit and you know how about the capital can you access the capital what are some of the strategies to to get some of the capital to execute on this the balance sheet also you could use this opportunity to enhance it the interest rate environment will change they have been dropping very aggressively since March probably will stay low for a very long time so there may be an opportunity to begin to restructure that balance sheet away from some aggressively high interest rate loans that we have seen over the last several years and and so an opportunity to come out of this with a much stronger balance sheet for your business so I think yeah and obviously you explore your all the reef programs you know you have the paycheck protection program the EIDL there are several state and local programs that that have been proposed there are some companies that are offering grants and other lending and we have listed several of those in our website if you go to leavefund.org and we have a banner for COVID-19 crisis response and we have detailed a lot of this material there as well for for your for your help and that concludes the the slide portion of the presentation I'm happy to take questions from you guys either in the chat room or I'm not sure if Jill will unmute the speakers but if there are questions in the chat room I will address them I will read them out and then address them. I think folks can unmute themselves by going in the lower left-hand corner of their screen and hover over the microphone. Like I can unmute all for a moment? Sure any questions for me? All right hearing none I mean I'd like to thank you for your presentation and also mention consult the Massachusetts Gaming Commission website as well for programs that we have compiled massgaming.com so thank you so much thank you everybody. Thank you. Thank you so much. Thanks.