# General Business Category > Entrepreneurship and Business Management Forum >  What small business owners fear most

## Dave A

This recent Gallup poll of small business in the USA is pretty revealing.

How different is the situation here in South Africa?

What poses the greatest threat to your business?
What gives you the most problems in your business?
What is your greatest fear?

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## Mark Atkinson

I'm not sure if my answers will be relevant because of the unique situation I find myself in as well as the way we run our business, but:

I'd imagine that the situation is similar, if not even worse in terms of government regulations hindering the growth of certain small businesses.  My business luckily doesn't have to comply with very many regulations in order to succeed and I don't compete for tenders to government institutions  :Wink:  We don't tend to get asked for BEE certification either.  That being said, being in the personal service sector, we don't qualify for benefits as other small businesses do.

Our biggest threat would probably be our competition. Extremely saturated market with no barrier to entry - not easy to set yourself above the crowd because of all the "noise". 

Our biggest problems aside from competition come from the sheer magnitude of the cost of marketing a business in our field.  Targeting an online audience in our field is most certainly NOT cheap.  Calculating our ROI and determining exactly what we are willing to pay for leads is a big part of our planning.

My biggest fear (again, probably unique and not relevant to this discussion) is that I won't be able to get the business into a position where it can thrive with very limited input from myself within the next 2 years - resulting in us having to close the business down.  Reason being when I begin my articles it will mean 3 years of no time to run the business.

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## IanF

My biggest fears
Government red tape.
Changing technology, eg  computer tablets instead of NCR forms.
Cost of new technology
Increasing cost of business from greedy municipalities and government utilities.

Anyway how do we strategise around this?

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## mother

My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.

The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers). 

What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.

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## murdock

What poses the greatest threat to your business?

customers who dont pay on time...and not at all.


What gives you the most problems in your business?

customers who dont pay or on time...the last bad debt took me around 5 years to recover...which affects all aspects of my bussiness


What is your greatest fear?

doing a project and not getting paid

just like the situation i am in now...i finished the project a month ago...then the promises of payments started...and so i start hearing all the excuses i have heard before...sooooooo many times over and over and over.

what does it do to my bussiness...it total f^&*% it up...why because people want prompt...fast response time...best quality...at the cheapest price blah blah blah....hello if you dont pay your bill how do you expect a company to offer all these things...and yes it doesnt affect your company right now because your project is completed and up and running it all my other customers who suffer because now my next project is on hold because i need the payment from the last project to pay for goods supplied...so that my supplier can pay his supplier and so it destroys the food chain... 

in the industry i am in and the qualification i have...if my bussiness folds tomorow...i could walk into a job tomororw and would probably earn more as a salary than my own company pays me...but unfortunatley it still goes back to payments...because if i dont get paid then i take the burden with me...

they only thing that would pose a threat but it would also affect me personally is if i was totally disable...which in the past proved to be my biggest challenge because without my arms and legs functioning i am no use to anyone...i am lucky to only be physically challenged at this point in my life...well and mentally :Big Grin: ...by you learnt to live with it and adapt...it doesnt stop me from doing what i need to do.

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## murdock

> My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.
> 
> The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers). 
> 
> What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.


ditto...20 years  later i am still in this position...and if all the people who owed me money actually paid me the full amount outstanding i could start a bussiness and have the capital required to run my bussiness efficiently  :Wink:  if i was the tax man and could collect all the money... interest and fees they charge i could literally pay off my bond and be debt free...but running a company in this country where it cost you more than the outstanding debts to collect the money...chances are i will be paying my bond to term  :Roll Eyes (Sarcastic):

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## Blurock

> My biggest fear the last couple of months has been cash flow... 
> 
> What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.


Poor admin may lead to cash flow problems. Late invoicing, not posting statements, wrong costing/pricing, not following up on delinquent debtors etc. 

Admin and accounting is very important in any business. Although admin does not generate income, it may save you time and money.  The business owner's time spent on checking and fixing things could be more productively spent on generating business and profits.

Do not employ a bookkeeper or admin assistant who can not perform at the required level just because they come "cheap". An unqualified person required to perform above their ability will cause more harm than good. Rather pay a bit more and get the job done properly so that you can carry on with your business.

Often small businesses can not afford such a person. Then rather consider a half day position or outsourcing that function until you can afford someone. Implement systems to be followed so that everyone knows what is to be expected. In the process you and your staff may also learn from this person and apply best practices in your business.  :Wink:

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## Newretailer

It seems like we are all struggling with the same thing! Cash flow is a nightmare for me too. I recently landed orders from a large company and even though I take 50% on placement of the first order, I still need the remainder to be paid promptly. These will be regular monthly orders and cash flow will sort itself out, but right now it is a BIG problem. I belong in a circus with all the juggling I am doing.

What I find the biggest challenge is to grow. After years my hard work is finally paying off. Customers are finding us without marketing. I need to expand into bigger premises and I just cannot afford it. Sometimes I remember how easy it was to draw a regular salary and the temptation is almost there to go back.

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## murdock

just be careful of moving to bigger premises...i can think of numerous companies which closed due to expansion...moving to bigger premises...there are some many factors to consider when you go bigger.

i have seen companies which had prime location and operated for many years...got well established then took the plunge...the most recent one...within 2 years there was a lock and notice on the door...liquidation.

unless you are gona go big all round...rather wait until you can afford it...and make sure you have taken all the overheads you will incur int account...the relocation cost...extra monthly overheads...cost to maintain a bigger building...addtional admin...etc etc

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Newretailer (05-Nov-11)

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## Blurock

> I recently landed orders from a large company and even though I take 50% on placement of the first order, I still need the remainder to be paid promptly. These will be regular monthly orders and cash flow will sort itself out, but right now it is a BIG problem.


In this instance an invoice discounting facility may be the answer. Factoring is the most under utilized tool in South African business. It is not there to bail out struggling businesses, but rather a growth tool that can take your business to the next level.

By leveraging on the credit rating of your reputable customer, you can get up to 80% of the invoice value paid on confirmation of the POD. The retention, less charges is paid to you when the debtor pays the bank/financier. 

You may also consider single invoice discounting where you do not have to factor your whole book, but you only sell those invoices which will give you enough cash to process the next order.

For more information visit http://www.grocashflo.com/ which includes an article about factoring for the small business. :Cool:

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## adrianh

Isn't factoring very expensive?

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## Blurock

> Isn't factoring very expensive?


Losing a sale because cash flow does not allow you to buy stock is far more expensive. 

Yes, it can be expensive if you use it for the wrong reasons. If your business is on a downward spiral, factoring will just delay the inevitable, at a cost. But if you are in a growth phase you will always be looking for cash to fund the next order. Having cash available may also allow you to negotiate a better price from your supplier.

The cost of typical factoring facility with a bank is the same as an overdraft, plus a monthly discount fee of between 0.5% - 0.8% of the debtors' book. For this the bank or factoring house will also manage your collections and send out statements etc. Invoice discounting is for larger entities with a debtors book of R5million or more. Normally a flat fee of R5k - R6k plus interest on the amount utilised.

An alternative is single invoice discounting where you only pay for the invoice discounted. E.g Inv R100k. The factor pays you R70k on POD. The R30k retention, less interest or a fee of R5k is refunded upon receipt of the debtor's payment. (Some factors levy interest at between 4-5% p.m. others charge a flat fee). By using single invoice discounting, the cost becomes a variable fee that you can budget for.

The benefits are; not having to put up security (although personal surety will be required). You stay in control of your business (no sleeping partners). Not having to wait 30 - 60 days for payment, you can immediately acquire more stock and process the next order.The facility grows with your needs. If the invoice value grows, the facility amount increases accordingly. No need to re-apply. Use the facility for as long as you require.

As long as you have credible debtors, you can leverage on their credit rating as the factor is paid by the debtor. This allows the small business to build their own credit rating over time. If required they can then apply for more conventional banking facilities. 

Go Grow Your Business! :Clap:

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Mark Atkinson (05-Nov-11), Newretailer (05-Nov-11)

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## Newretailer

I am so glad I belong to this forum. Thank you for this information.

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## Abdi

> My biggest fear the last couple of months has been cash flow... When I "retired" from the corporate world 4 years ago, I used my pension to start up my business, and I had enough savings to keep me (personally) going for 3 years. My business' setup costs have been high, and a lot of our expenses to date have been on R&D (very necessary, since we're in unchartered waters). The last couple of months I've had no choice but to draw a salary, even though we haven't reached the turnover target where the business can afford to pay me. This in itself wouldn't have been disastrous, if our debtors' payments were up to date. And I can assure you that the current economic climate is NOT the reason for debtors' non-payments. The debtors that are taking up to 90 days to pay a COD account, are the affluent ones, not the middle class ones. In total, we have over 1 months' turnover short in overdue accounts. THAT is disastrous! So right now I fear that if our cash flow problems continue, it could result in us not being able to pay our salaries, or force us to close our doors.
> 
> The biggest threat in our business, is the fact that I am the business. This will only change once we have grown big enough to warrant employing more head office staff (i.e. managers to take over specialist functions, a buying office to take over sourcing and a designer to feed the factory and customers). 
> 
> What gives us the most problems? Admin. Since admin is not an income-generating function, it moves to the bottom of my pile every day. But the lack of good admin results in inefficient management and time wasted.


This is exactly my situation and I dont want to be too demanding on clients and scare them off but at the end I suffer.

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## Justloadit

> This is exactly my situation and I dont want to be too demanding on clients and scare them off but at the end I suffer.


I also use to fear asking my customers for payment, but as time passes, the fear goes. Everyone knows you need money to operate. Overcome this fear, and be polite and upfront with a question such as "Hi xxxxx, I am a little tight for cash right now, can I come and collect my payment?"

You are requesting requesting politely. Never as "Can i get paid please?" - you open up a door way for you client to make excuses. Being upfront places them on the spot, which requires commitment from them.

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## wynn

Pete Bowen had a software program that you loaded the amounts owed by clients and it would send reminder emails at certain times preceding month end to gently remind clients payment was due then it became more urgent as it fell overdue.
The theory was that if you kept reminding the client you would be at the top of the list.

Unfortunately I don't have a link, perhaps one of the ex BW's does know the link?

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## Blurock

> I also use to fear asking my customers for payment, but as time passes, the fear goes. Everyone knows you need money to operate. Overcome this fear, and be polite and upfront with a question such as "Hi xxxxx, I am a little tight for cash right now, can I come and collect my payment?"


Never fear to collect YOUR money. Remember that the debtor owes you, not the other way round.

Tips for collections: Never be rude, always be professional and business like. If it is a difficult customer, speak directly to the owner. Get a commitment, even if it is not for the full amount. 

Find out who the creditor's clerk is. About a week before the due date, phone and confirm that they have received the statement and that there are no queries. Some people tend to wait until month end before raising queries. You then end up waiting another month to get paid.

Make sure that your paper work is in order; delivery notes, invoices, statements etc. Quantities and amounts must be as agreed as queries only delays the process and gives the debtor an opportunity to divert the conversation from him not paying, to you not performing. That is why good admin staff are precious! :Yes: 

Business is about relationships. Maintain good relations with your customers so that any problems may be discussed openly. You do not want unpleasant surprises. By visiting customers on a regular basis, you can also gauge whether stock is moving (sales) or not (problems). By networking in your business community you can also get a good feel for where businesses are and how they are performing.  :Batman: 

I am sure our members may be able to quote many best practices that we can learn from. :Cool:

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## ThreePeaks

Blurock, you offer very solid advise the entire way through this thread.

If you find that you are still battling with cash flow problems perhaps its time to outsource to a professional.
Three Peaks offers personalised cash flow management solutions for small business owners.

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Blurock (09-Nov-11)

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## wynn

> Pete Bowen had a software program that you loaded the amounts owed by clients and it would send reminder emails at certain times preceding month end to gently remind clients payment was due then it became more urgent as it fell overdue.
> The theory was that if you kept reminding the client you would be at the top of the list.
> 
> Unfortunately I don't have a link, perhaps one of the ex BW's does know the link?


"I found it" Here is the link
http://www.getting-paid-system.com/index.php

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Dave A (13-Dec-11)

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## Dave A

The amazing thing about this thread was when I asked the question, the last thing on my mind was bad debt. In fact I didn't even rate it. For me bad debt was just a number in the budget, and as long as it didn't exceed that all was well with the world.

But after a little thought I have to agree - it has to be right up there as one of the biggest threats to (particularly SME) businesses here in SA. We just have way too many people who think it's OK not to pay for goods and services received.

Enough bad ones and you're a gonner.

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## wynn

If your markup is 20% and your average sale is say R500.00 if one in five buyers does not pay on time, you may as well of not done any business at all untill the delinquent has paid???

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## Dave A

In some businesses, even too many *slow* paying debtors can sink you.

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## Justloadit

Another concern as a small manufacturing business, is to get that huge order you always wished for, and now you must finance it.

It sounds great, but the risk factor goes up 100 fold, especially when the client concerned insists on paying 45 days of shipment

Just some basic numbers - 
Order value approximately R1million a month.
Raw materials take 6 to 8 weeks to arrive at your premises
It takes you 6 weeks to work the raw material into a product
To get good prices from suppliers, you have to pay up front when placing the order
The order will run for a year or more - unknown
By the time you get your first payment, you in for approximately 4 months of manufacturing, and have paid 4 months of raw materials up front paid

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## Blurock

> Another concern as a small manufacturing business, is to get that huge order you always wished for, and now you must finance it.
> 
> It sounds great, but the risk factor goes up 100 fold, especially when the client concerned insists on paying 45 days of shipment


Unless you have deep pockets to fund such a long cash flow cycle, you will need some form of supply chain finance. Will the supplier give terms? 

You may consider an L/C or even stand by letter of credit to your supplier as you need to import at least 2 - 3 shipments of raw material before you can convert any invoice into cash. This may be a slightly more expensive option, but will allow you more flexibility. What happens if the debtor does not pay on 45 days?

You may also consider discounting the invoice, which will give you up- to 80% of the invoice value on POD. This option will cost you marginally more than an overdraft, without the security strings attached, but it will accelerate you cash flow by 45 days. :Big Grin:

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## SSS100

CASH FLOWS is the worst, esp dealing with parastals

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## Miro Bagrov

The main difference between the USA and South Africa is the cost of capital.

Here business owners who borrow must pay 10% interest when in the USA one must pay 1%. (Something to that effect)
Even with similar Profit Margins, the South African business pays more.

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## robinsonwang

> This recent Gallup poll of small business in the USA is pretty revealing.
> 
> How different is the situation here in South Africa?
> 
> What poses the greatest threat to your business?
> What gives you the most problems in your business?
> What is your greatest fear?


How to get a more competitive supplying price

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## flaker

Im surprised that no one mentioned labour. if you're a cash business cash flow can be no problem but labour's continuous demands for a larger share than even the bosses is scary. there is far too much protection for labour. there are times when a boss wants to be Trump & say "you're fired".
In this country that can't happen. you're hauled to the labour court or threatened or......   :Mad:

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## gac

Oh boy, this discussion sounds very close to home. I have been running my own business for 10 years after being salaried for 20 prior to that and often think about how nice it would be to again wake up on the 1st of the month knowing the next salary is only 25 days away rather than the thought of whether there will be enough money at the end of the month to meet all the payments. 

Cash Flow is not a new phenomenon but appears to have become aggravated due to declining economic conditions, rapidly rising costs (including need for higher disposable income at home) and greater competition driving down profit margins. Reducing Margins impact negatively on cash reserves over time and simply means we can afford less to wait for our debtors to pay us. 

Incurring Bad Debt is not necessarily a problem for if anyone was to boast that they have never had a debtor default, then that probably also means that they have been overly conservative and lost out on a lot of good business along the way. Very fw business opportunities are risk free and I have learned that one should rather strive to keep Bad Debts within a maximum tolerance level and that level varies from business to business depending on the average profit margin per trading year.

I agree that Admin and particularly keeping debtor records up-to-date is critical. This enables one to pick up a negative trend early and provides an opportunity to take corrective action sooner rather than later. It does of course help more in a business where one is supplying regular customers on on-going basis as opposed to project type work, where transactions tend to be once-off and therefore monitoring trends is almost impossible. In the latter scenario the need for good documentation (detailed quotations, trade or credit applications with reference/credit bureau checks, thorough agreements etc) up-front part payments etc is probably the best one can do. Easier said than done, I know but absolutely critical to take the time to go through the motions. Never be afraid to ask for a payment that is due to you but be careful to ask for it rather than demand it. I have learned that the minute I have ever given a customer a reason to be upset with me (e.g. getting shirty about a late payment) it is too easy for them to play hardball and drag it out even more. Instead I have learned to be sympathetic but politely persistent (ask when payment will be made & diligently follow up on that date) and firm about the need for them to make the payment. Doesn't work every time but does most of the time.

Factoring & Invoice Discounting is an option but has strict qualifying criteria, is fussy about the quality of the debtors, can be quite onerous to a business that is already struggling to maintain a sound administration, comes at a finance & administration cost and it may be far better to rather incur additional expense by implementing a better bookkeeping system in-house. It is however an excellent way to finance a growing business's additional working capital needs where good quality clients make up the majority of the book. But be cautious.

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Blurock (29-Dec-11), Dave A (30-Dec-11)

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## Blurock

> Factoring & Invoice Discounting is an option but has strict qualifying criteria, is fussy about the quality of the debtors, can be quite onerous to a business that is already struggling to maintain a sound administration, comes at a finance & administration cost and it may be far better to rather incur additional expense by implementing a better bookkeeping system in-house. It is however an excellent way to finance a growing business's additional working capital needs where good quality clients make up the majority of the book. But be cautious.


Factoring is a growth tool and should never be applied to a failing business. Once turnovers decline, factoring will only add to your woes. However, it is an excellent tool for growing businesses without access to traditional bank funding. 

I have seen an IT firm grow from R2.5 million to R40 million in one year. Another business managed to grow from R2mil to R22mil by using factoring to accelerate cash flow. These are exceptions, but shows what can be done if factoring is applied correctly.

New entities often do not have access to supplier credit and are expected to give terms to customers in order to make a sale. How often are opportunities missed because there is no cash flow to procure raw materials or stock necessary to do the next transaction? By having access to cash from discounted invoices, the small business would be able to undertake new work and settle creditors early for a possible discount. 

This will enable Small Businesses to do what South Africa needs them to do: GROW! :Big Grin:

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## Miro Bagrov

I actually am interested in Factoring - who at the moment buys debt? At what discount rate?

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## Citizen X

1. My greatest  concern is reaching my specific target market in the most cost effective way;
2. As a small business that sells skill, I have learnt the very hard way that having a credit facility does not work for me. I've had situations where I've done business plans plans for clients(an exhaustive 3 week process) only to have the client tell me afterwards, "no, i don't need the business plan anymore"

"Credit is like black magic, the customer and the money disappear"

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## Blurock

> I actually am interested in Factoring - who at the moment buys debt? At what discount rate?


I am a broker for invoice discounting and factoring. Send me your contact details for more information.  :Smile:

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