Career change: Computers to cabinets

      Issues that could affect the success of a newly purchased woodworking business. July 29, 2003

Question
I am currently in the computer industry and am becoming burned out. I am looking at purchasing a small commercial cabinet shop that specializes in 32mm melamine construction. While I have very limited experience in this area I do believe that the current owner has a very good system and is willing to train for a short period of time. I am not completely new to woodworking or cabinet building as I have enjoyed woodworking since junior high and have equipped my garage with several pieces of machinery and have made a few pieces for myself and family. What can I expect in this industry? How can I overcome the downside of the business and what are some of the benefits? How have you grown your business? Please discuss marketing ideas, employee issues, contractor issues, payment issues, and what kind of profits a small one or two man shop might expect.

Forum Responses
(Cabinetmaking Forum)
Give your head a shake! If you really enjoy woodworking and money isn't important, go for it. One advantage you will probably have over me is business skills. I'm an excellent tradesman but a lousy businessman. It's actually more important to have the gift of the gab, as they say.



From the original questioner:
Well, the money is important to a point. I do have a family to support. I realize that if I want to make more money, I will have to grow the business. What is the average that one might expect to make in this industry in a one/two man shop? Are the seasonal feast and famine cycles regular? At the moment I will assume that in the very near future I will hire a shop man and then hit the road drumming up business. (Or as a good friend says, "go out, hunt it down, kill it, bring it home for dinner.")


This isn't true for everyone, but for me it took over four years before the business started making any money at all. I was new to this rural area and nepotism rules here. That was (and still is) the biggest hurdle. I'm now established enough that the nepotism is working for me a lot. I broke some rules, though, like overkill on quality... I felt like I had to go the extra distance to establish myself.

I put up yard signs at every job, advertised heavy, and basically did all I could to make my name as common to the locals as WalMart. Joined the Chamber of Commerce, became a director, bought signs for the rodeo grounds, banners for parades, etc.

I'm still working on it! Still not making a good living, but I'm getting by. By-products kept me afloat during this winter's slow down (chests, dressers, etc). But business is hectic again.

Difference is, now most of the work I'm doing is high-end. At first it was just plain Jane stuff. Keep researching, thinking and contemplating. Read all you can, too. I will tell you this, you have to do what you love to do in this field. Otherwise it'll make you gray way too early.



I don't mean to be overly negative, but I think it's important to be realistic - you stand a real good chance of going through hell and losing everything.

To run a business you need business experience and skills. To run a cabinet business you also need cabinet experience and (if you're the one doing much of the work) skills. I would strongly recommend you gain both on an after-hours / part-time basis before quitting your day job.

You could work your regular day job, then work for a cabinet shop another 4 or 5 hours (it'll be good training for the long hours when you're running your own business).

Or buy some more tools and machinery and run a small business out of your garage.

Be careful buying an existing cabinet business. A small shop especially is mostly worth whatever the tools and machinery are worth. Reputation/good will are attached to the owner, not to the shop. They will leave when he does.

It's difficult to hire a good shop man if you have little or no experience hiring people. And certainly you won't know what to look for in the way of skills. And what happens when your shop guy quits on you, in the middle of a big job or two, and you're not up to speed on how to build things?

As far as money goes, there's not a lot. You can make a decent living if you work very hard. At any rate, just be careful. Don't risk your family's savings and future without testing the water first.



I would warn you about a couple things:

1 - Just because you've built some furniture in your garage does not give you adequate experience to become a business owner. I don't intend to offend you on this, but all of us have seen (or bid against) shop owners who simply don't know what they're doing. It sounds like you lack the specific business experience in this field to run a shop. There's much more to it than spending a few weeks with the existing owner.

2 - There are plenty of 32mm cabinet shops around. You're not buying anything special. Unless you have some specific customers that you have relationships with, you will be in deep *!%&. As an owner of a small shop, you are selling yourself and your knowledge of the trade. Without any real experience, how will you do that?

I don't mean to come off negative, but hopefully realistic. This is a tough business, and as others have said, you have to love it. You may think you love to work with wood, but when you're faced with the business challenges that are typical of this industry, you may change your mind.



From contributor E:
I tried to buy a cabinet shop for a year before striking out on my own. Buying any business is extremely difficult... and you should ask yourself if the money spent on buying a business is better spent on starting your own business.

Here are issues that I ran into:
1) Does the owner really want to sell? Twice, I had owners who backed out of the deal after advertising their business for sale.

2) Will the owner really train you, or is he really thinking retirement? Will he stick around for a year or more, full time, till you know what you are doing? Is this someone you can get along with and like?

3) What do you bring to the table besides money? How can you make a contribution?

4) What market is the business in, and would you really be happy working in that marketplace?

5) What happens if the key employees quit, because they don't like you? Or because they think they should really be running the operation, not you?

I guarantee you the owner is asking too much for this business... who is going to do the appraisal - you, him, the broker or a professional? Are his books in order? How much of his business is done in cash, and not reflected on the books?

Best of luck, but be careful about taking too big a leap.



I am a fourth generation woodworker. I guess I do it professionally. But my four sons went to engineering school to study computers in a big way. Should I say more?


I'm a second generation carpenter. I'm very good at my trade but I refuse to let my two boys in the shop. The buck stops with me! I work twice as hard as all my friends for half their pay. Should have been a plumber - I'd be making 3 times as much as I do now.


From contributor K:
When you work for yourself you generally lack the security that comes with sick leave and paid health insurance common to a lot of jobs, but not universal of course. That's definitely something to work out.

As to how much you can expect to make working alone (assuming you are operating in some decent market base), once you get your shop skills dialed in, you can probably match the annual salary of, say, an elementary public-school teacher with only a couple of years service (minus the sick leave and health insurance of course). That's assuming jobs come along to keep you busy and you price your work correctly. Moving beyond that seems to require employees or better machinery or more skill and speed (which comes with practice). I'm thinking that's about the most precise guesstimate you'll find regarding anticipated income.

I hope you discover you have some startling design skills and can wow the carriage trade with pieces "to die for" and bring in lots of Daddy Green. I read articles from time to time in the trade magazines about folks doing this instead of slugging out kitchen cabinets day after day (which isn't all bad if you like the working-for-yourself deal).



I came from a background a lot like yours. I was making about 60k and a full basket of benefits. When the corporation downsized, I took the plunge and started my own business. I was able to bring enough cash into the deal to build a 6000 sq/ft shop in a pretty good location. I borrowed and bought a panel saw, drill bank, and edge bander. The first year I took a full 60k cut in pay. Second I went backwards more. Now in the third (I say this with my fingers crossed), I seem to be making a little money. I'm kind of careful not to brag too much because this might break or that might happen or the insurance may triple again or something else. Insurance companies will give you diarrhea, your suppliers will give you nightmares, some customers will tear your heart out, and your employees will make you want to commit murder. I thrive on high stress situations, and there is at times a feeding frenzy of stress in trying to push a cabinet business up. If you take the plunge that you are contemplating, go into this thing only after carefully analyzing the playing field. If you have the slightest sense of doubt, tread softly - otherwise, jump in.


From contributor C:
It's conceivable to think that you could buy an existing business and hire experts to help see your way through it. That could work if you have resources from somewhere else that you are willing to pony up. In my opinion, a more realistic and sane approach would be to go to work for a builder of high end cabinetry and learn the business along with the process. Could take a while, but one thing will be certain. You will make more as an employee than you will as a struggling, inexperienced business owner. This is a very peculiar business (probably why the existing owner wants out) and that can't be taken lightly.


It's not a good time to start a cabinet shop. Some very well-established shops in this area
(San Francisco Bay Area) have gone belly up in the last 6 months due to the economic downturn.


I've met a couple of guys locally, and for the most part, they tell me they make enough to live on. Other than that, they don't say much, but one guy's wife works as a fulltime schoolteacher, and that tells me a lot. This (I'm finding out) is not steady working by any stretch of the imagination. I'm in what would be called a small market, and money seems to be tight here. My plan is to retire from my present job first, then do this fulltime.


From contributor S:
I started out as a one man shop and have made money every year I've been in business. The best I can recall from the two and three man operation days was sales about $300K to 350K per year and my take home was maybe $50K to 60K.

My take home now is +$250K a year on 2.5mil to 3mil in sales.



Why is your percentage of take home much lower now than it was in your early days? You were keeping about 20% on a low sales volume, why only 10% now?

I am glad to see that someone at least posted solid numbers to help this guy out instead of telling him to keep his day job.



250K take home is great. How much is that before taxes?


From contributor E:
Some people are willing/able to bet their entire futures on a business venture, others not willing. My wife, for example, would/will not allow us to use the house for security on the purchase of capital equipment. This limits what we can do, because bankers (and SBA) expect personal guarantees for these types of high-ticket purchases.

I've seen that those who risk everything either do great or go broke.

So contributor S, I'm curious - how long have you been in business, how long did it take to grow it to $300K to 2.5 million, and to what extent was your own personal wealth tied to the business, so that if the business went down, you went down with it?

If I were twenty years old, it would be a different story, but now with two kids in private college, I can only afford to risk my time and a modest amount of money.



From contributor S:
I take home less on a percentage now because I put more back into the company.

+250K is my salary, not company profit, which runs around 14% to 20% (that's after my salary). I pay my fair share of taxes.

I've never bet the farm on anything around here. Saved my money and paid cash for everything except the building. If it all goes to hell tomorrow, it won't take me with it.

I would agree to be real big takes that gamble of everything you own +++ and I haven't got the balls to do it. I'd rather sleep at night.



From contributor U:
Do you have a web site so that we all could see a glimpse of your fine organization?

10% for "owner's salary", and another 14-20% for profit (is that net or gross)? I would be interested to find out exactly what you're producing.



From contributor S:
That's net.


From contributor C:
Although I have made a decent living at this for many of the past 20 years, I will stand by my original post. This is a very quirky business and it is simply unrealistic for someone with no real experience (or serious capital from a previous endeavor) to expect substantial financial return in the early going.


From contributor U:
You're claiming to make $600,000 to $900,000 of net profit out of a woodworking business, but aren't even willing to share a website? I would venture to guess you're a good story teller.


From contributor G:
I was a corporate executive and the business went away. At 52 I took all my retirement and bought a high-end custom furniture business. I am a better woodworker than the retiring owner and my son is an A+ salesman who works with designers. I have purchased $30k in tools to upgrade a 20 year old business and have improved quality. We are growing the business and I think we will make it. 12 hour days are the norm and I don't sleep well worrying about cash flow, orders, accounting and the 12 people who depend on me to make this work. I too looked at cabinet shops but the books were always suspicious and the industry is too competitive. I love the business and have very good business skills, which helps. Take my advice and spend time with a good CPA running numbers before you leap. Try to take the emotion and excitement out now or it will get knocked out later. This takes a stomach full of guts but the business has made very high profit for the last ten years. I also do all shop drawings and every piece is different.


The above post includes some sound advice. If you do this because you love woodworking, fine, go to it. But take emotion out of it before you sink your grubstake (so to speak) into it.


From contributor E:
I chose cabinet work over furniture because furniture can be (and is being) made in China and other third world countries, shipped into the US and sold for 30% below your cost. The number of furniture manufacturers going out of business is really high. In So. Cal. the really big auctions are the furniture companies going belly-up.


From contributor G:
Contributor F, you're right about imports but not about our niche. We have furniture in very famous people's homes and they want it hand made with exotic veneers and it better not be available to their neighbors to duplicate. We are doing a big order for a famous football player now and an actor is coming up. We are not even close to a production shop and are more like Gepetto and a few elves with saws and hammers.

Just had a designer who we did a house for call in a panic. She bought furniture for a guest bedroom from a well known LA manufacturer and the client hated the finish. Asked us to strip it and match our furniture. We stripped and found maple veneer on the top only of the night stands and it was sanded through in two spots. The drawers were formed MDF and the rest was MDF sheet. Fake finish. They paid $2000 for the night stand, so the client probably paid three.

If it's made well and unique, you can make a living at this, but it isn't easy.



You've received close to 30 replies. Only one person said he's making money - the rest say they just get by. There's money to be made - just look in the yellow pages. I live in a small town of about 50,000. There are 16 cabinet makers listed in the yellow pages. That's one cabinet maker for every 3125 people. In the larger cities you will see pages of cabinet makers. If the business was as bad as these guys make it out to be, you would only see a few listed. If you are serious about getting into the business, research and compare one shop against another. Hey, if you have to, get a quote from several of them for a project. Don't be afraid to ask questions. For the 28 guys that replied that they don't make much in this business, not a one stated their income. I made $89,000 after taxes last year.


From contributor U:
I think $89k is a tad closer to realism than $600-900k.

I netted $96K last year. Not bad, but certainly not as good as many other businesses. From my experience, I see many people struggle in this business because they have no experience. They think since they've pushed some wood through a table saw, they can make good money like the boss that's "keepin' them down". There's just not terrific money in this business, and to make decent money it takes a lot of very hard work, previous knowledge, a business sense, the ability to find good employees (who trust you know what you're doing), and some luck.

You should gain some experience or expect to really suffer for several years until you gain the experience (and hope you don't go bust before you get there).



From contributor J:
Contributor S isn't all that wrong with his numbers, I don't think. Without knowing a thing about his business, I am assuming he gets good money for his work. Therefore, I propose that his books may look something like this assuming sales of 3mil:

Materials: 25% 750,000
Labor: 20-25% 600-75000
Fixed Overhead: 10% 300000
Other Expenses 10% 300000

All right, I'm up to 2.1 mil in expenditures. Although I doubt his overhead is 300k a year. Now he also has to be able to turn $1000 worth of plywood into $4000 worth of cabinets, product, etc.

This leaves us with a theoretical profit of .9mil, or 30% gross. He pays himself 10% or 250000 a year, leaving about 20% net profit for the company to buy whatever new toys he wants, maybe even a company Jaguar, who knows?

While I agree that there aren't many of us out there making the same money, none of us should expect less. If you have low expectations, you are setting yourself up for failure. Use him as an example of what to strive for.



From contributor S:
You just about nailed it. The only number that is way out of whack is Labor, which comes in at 13-15%. OH and other fixed are a bit low.


From contributor J:
Well then, can I make another assumption and say that you are probably set up more as a manufacturing company than a build-one-box-at-a time-and-take-all-day-to-do-it type company?


From contributor U:
Contributor S, I'm not asking for financial information or anything of the like. Just a little peak into the products you're producing. Is a website too much to ask for to prove that you really are legit?

AWI has an interesting Cost of Doing Business Survey each year. Their highest profit companies aren't even close to contributor S's figures.

Setting goals is one thing. Starting a business with a skewed sense of reality and goals is another. If you all recall, a guy asked for advice on possibly buying a 32mm shop, with little experience.



From contributor J:
I started my company knowing, or thinking I knew, what I would make in the first year. I was out shopping for expensive cars, a nice house, etc. - you know, every thing that "business owners" are supposed to have.

8 months later, having worked the longest and hardest I have ever worked in my life, I was the poorest I have ever been. No money and having to put up with customers who just loved being a pain. Thankfully, I was only 19 at the time, and had no wife or family to support. 6 years later I am only beginning to make money.

So, now you know what you have the potential to make, and also that you most likely may not make it.

If I were you, and you had a job making 40-60k per year, I would give very hard consideration in quitting. As you know, the economy sucks, and now isn't the best time to start a company unless you have plenty of money in the bank.



From contributor K:
Okay, fess-up time. When I read $250,000 take-home, I had just bandaged up a good-sized divot on the back of my hand after carrying a heavy cabinet into a house with hog wire cunningly worked into their deck gate, which managed to snag me. I didn't want to be reading about such success. I wanted to read about poverty and misery just then.

Contributor S's numbers seem real. A shop owner near me made similar kind of money back in the seventies and eighties. Anywhere from 12 to 20 employees with the ordinary woodworking tools of the day. Two to three kitchens a week. This county only had a population of around 50,000 at the time and was growing pretty fast. He retired in the early eighties with a seven-figure stash.



From contributor U:
The $250k/year is certainly attainable. But the additional 14-20% net profit that contributor S claims is not.

I wonder what a company does with that $350-600k of net profit per year? I would think an owner might take home more than $250k/year if that was really the case, and was paying taxes on those kinds of profits.



I don't see why those numbers are not attainable. If you are set up efficiently and have a capable group of employees you take care of, why can't it happen? It's not to say this is the norm or to be expected by everyone entering this industry. As for the $350-600k net per year, you have to retain a lot of those profits to reinvest to maintain such an efficient operation. So he takes a salary of 250k, and retains the rest in retained earnings or plays around with a new company car as someone mentioned. I am just getting started in the business and have had the good fortune of speaking to several people who have been involved in the business. A few of them were up in the $5-20M in sales/year with a 6-10% net. However, those that attained that level actually hated it and either got out of the business or scaled back to a small shop. Those that remained small are still in business and enjoy going to work everyday. That should tell you something. It's possible, but it's a lifestyle question each and every one of us has to decide for ourselves. You're probably not going to make six figures working 40 hour weeks in this industry, and if you could there would be a gluttony of us crazy cabinetmakers roaming the world.


From contributor J:
In the past few years I've had the opportunity to speak to several small shop owners in person. I remember a few that claimed they made very low 6 figures on sales of about 400k. So that's about 25% of total sales. Whether you want to call it salary, retained earnings, gross profit... the bottom line is there was still about 25% left over.

For a larger operation, I think 10% for the owner is a great take. As any type of business grows larger, I think you see profit margins shrink a little bit due to inefficiency, etc.

Since I'm not a custom cabinet maker, I'm kind of curious what the total percentage of your materials run for a job. Are you able to make a $50 sheet of plywood into a $200 product?



From contributor U:
As a custom Architectural Woodworking company, our material costs vary greatly from job to job. One project might be in figured anigre, and the next in cherry. The material will vary quite a bit, but the labor will be very close (if it were the same job). So, labor and material percentages are year end gauges, not project by project gauges. Ours just vary too much for them to mean much.

But at year end, material costs are almost always in the 30% range (this includes buyouts and subcontractors).

Year end labor costs are about 30%. Overhead (shop and office) are about 25%.

That leaves about 15% net profit (before paying owner's salary, depreciation, etc.).

We always figure each employee accounts for about $125,000 in sales.



From contributor J:
Contributor U, I think your numbers are very impressive, and probably more typical of what a very well run and efficient operation can obtain.

From your figures, I also gather that your employees are very well paid, probably averaging about $14-15 per hour. For each 125,000 in sales, each employee costs about $37,000. So I'm figuring about 28,000 in pay, maybe a few thousand for insurance, etc., and the rest to take care of payroll taxes?

Are you including any equipment purchases, tooling, toys, etc. in your overhead account, or do you have to take that from the 15% gross profit?

So for the original questioner, if you can have a well-run operation and have sales of about 500,000 a year, you might expect to be able to pay yourself $75,000. Some people may scoff at that, but there aren't many people, especially in this economy, making that a year.

Sorry to sound so nosy, but to make it in any line of business, not only do you have to love what you do, you also have to be able to love the numbers side of it.



From contributor U:
You're right on concerning our average pay for employees. Equipment purchases, tooling, etc. are all in our overhead costs.

I also agree with your assessment that the questioner could make $75/year on $500k of sales if he had experience and was in a high-end market. If he tries to compete on price alone, he will not make it. That is where my concern would come in - with no experience there would be no established relationships and reputation. He would almost be forced to compete on price alone for a while.

This is a very tough business, but good profits can be had. There's a tremendous amount of risk, though, and inexperience really multiplies your risk (in my opinion, to the dangerous level).



From contributor E:
Before leaping into the cabinet business last year, I called on and spoke with the owners of 20 local shops with sales in the 200,000 to 3,000,000 range. (Note to the original questioner: this is a great way to learn about the business end of the business, and I strongly recommend doing a survey before committing to anything.)

Many of the owners were willing to share their bottom line numbers with me, and at least four let me look at their financial statements. Here is my conclusion: the average net to the owner for a well-run, successful cabinet shop, in the right market with a good track record, and lots of referral business, was about 15% net to the owner. Some were doing better - 18% to %20. Many were doing 5% to 10% net. Some were going broke.

The guys at True 32 also published their numbers on their web site, and they claimed numbers in the 20% to 25% net (if my memory serves me).

All of this is to say that a successful $500,000 business could/should net the owner between $50,000 and $100,000. Which suggests to me that contributor S could well make $250,000 on 2.5 million of sales. I've talked to others who are doing as well.

What's more interesting to me is how long it's taken him - or anyone out there - to grow that size of operation, what market they are in, what their capital investment was... i.e. how much was at risk.

If you make it without ever pulling down on savings, or signing personal guarantees, I would imagine we are talking about a business that took a decade or more to develop.



From contributor U:
In my opinion, an owners net income really depends on what type of business you are in.

For instance, I've found that a high-end custom shop can grow to a certain level (probably $1-1.5 million) and still obtain a similar net/sales ratio. However, when you get above that sales level it takes some expensive employees to keep that work flowing, and your net/sales ratio goes down.

It seems, from experience, that shop efficiency goes down at that level too, because of the need for another level of management between the office and shop.

Basically, in my opinion, the growth above a certain point is not really beneficial. You take on more sales, and the net goes to higher paid employees and inefficiency. An owner ends up spending more time on the business side of things than the production side of things.

Contributor S's claim of making $250k on $3 mil isn't out of line. But making another $600-900k net on top of that is extraordinary.



From contributor S:
Read NASFM's profit report. We've participated in the survey every year for the last fifteen.

You don't survive and thrive in this business without being automated, which costs a lot of dollars.



The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).

Comment from contributor A:
Been there, done that. I'll never make the money or have the security or regular hours (mostly 9-5) that I had when I was a systems analyst (aerospace industry). I have stopped popping Rolaids like candy, I sleep through the night and I have even lost weight.

Although I work more hours than I ever did in the computer business, I don't have to be on-call and go to work at 3 am on Sunday to rescue some pencil neck geek from a system crash. At the end of the day, I have an end-of-the-day.

I look at the positive influences that this has had on my life and I can only counsel you to take the leap.

Don't sweat the small stuff. Money isn't everything. I have learned to reduce the level of my desires to the level of my needs. Do without the $30/bottle wine, buy shoes not made by Nike, go to work for someone else. Learn the details. Spend all day sanding a gable or a crown moulding. Make something, anything, out of scrap pallet wood that has multiple compound angles and keep doing it until it is perfect. (Like the finger-painting of a child, taped to the fridge, it is something I am really proud of even though it means nothing to anyone else.)

I still keep in touch with former colleages and have enjoyed their envy when we get together for social gatherings. I refuse to wear ties anymore and my old suits don't quite fit since I am more physical than I used to be. When they grasp my hand and find it encrusted with callouses there is respect that wasn't there when I was just another "propeller head."

Do it because you want to, because you have an inner desire to create something. Do it because, like me, at the end of the day you want to be able to stand back and say "I made that!" or drive by a house and say "I built the kitchen there."

If, on the other hand, you want to make money and that is your primary focus, find another business.

He who works with his hands is a laborer.
He who works with his hands and his head is a craftsman.
He who works with his hand, head and heart is an artist.



Comment from contributor B:
Lots of talk about low profit margins here. What about the most difficult part? The customers. They have in their head that the cost of their dream 20' X 9' built-in cherry entertainment center will be about $2500 at most. When you meet them and they beg for a ballpark figure before you even design it and you say $8000, they cry and cry theif! Oh yeah, your cost is $6500 with $1500 profit for 5+ days work. We sell an expensive product that is not pocket change for the average family. It's a tough business, but I love it!


Comment from contributor D:
I have been 30+ years in the commercial aircraft maintenance business. A year ago, I left that field, and investigated working for a cabinet making company. I know I don't have the background to dive head first into that business, so I anticipated working for a few years as sort of an apprentice. I couldn't get anyone to take me seriously, that I was really willing to go to work for the usual wages in your industry. Instead, I am working for a small aircraft company. I am having a pretty good time playing with my tools again, but I would still like to build cabinets for someone. I am working for half of what I was, and we haven't really had a problem finacially, so I can afford the usual industry wage. I just can't seem to get anyone to take me serious as a worker and not a suit.


Comment from contributor H:
I closed my three man cabinet shop in 1999 after a ten year run. In that time I had both feast and famine. There were times when I thought I would be able to make the leap to a much larger shop, only to have those aspirations wiped out by some unforseen calamity, like an employee wrecking my truck, or a different employee ruining $3,500 worth of veneered panels (with the wrong stain) when I took one day off to go to my brother's wedding.

I retrained, learned Autocad and a variety of other software cabinet tools and closed the shop. The first couple of years in the workaday world were difficult and trying to do this in the uncertain post-911 world didn't help, but, five layoffs later I have finally found a great company where I think I will be able to stay for many years. These days I am a lot happier person with a lot more free time on my hands to do things I love, like woodworking, which I never had time to do when I was running a business.



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