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Jessica Fialkovich

Exit Factor

Jessica Fialkovich

Gabriel Flores  0:00  

Hello, everyone, and welcome to the shades of entrepreneurship. This is your host, Mr. Gabriel Flores. Today I'm here with Jessica Fialkovich, Jessica, how are we doing?

Jessica Fialkovich  0:11  

I'm doing great. It's so good to be here. Thank you so much for having me.

Gabriel Flores  0:14  

Thank you very much for joining the show. You're an author, you're also working in the small business world, specifically with entrepreneurs on kind of scaling and selling really. But before we get into that, give us a background. Who was Jessica?

Jessica Fialkovich  0:28  

Yeah, great questions. I always never know how to answer this question like a super generic one, right. So I was born and raised in Southern New Jersey, I grew up not in an entrepreneurial family. So my grandparents, great grandparents, great, great grandparents were all entrepreneurs. But actually, my mom's a nurse. And my dad is an educator. So they kind of took a turn, they watched like my juggler, watch my grandparents do this, like a pal entrepreneurship in small businesses, like the ups and downs of rollercoaster rides, and decided they wanted to save for career path. So that's what I was taught to do the safe career path, go work for a company have a stable career for 40 years retirement funds, like all that stuff, right? So I went down that career path, worked in sports for a little bit. And then I was in commercial real estate development, I had just gotten a new job in 2008, with one of the largest commercial real estate developers in the US in 2008. And that's where kind of that story ends, right. And we all know, you know, we all know what happened there. And so that really, that changed my mindset. So that was that was a pivotal moment for me in my life. And I realized that at that moment that it was actually safer. And I had more control over my life to start and run my own businesses, whether they be large or small, versus working for a large corporate company where, you know, some dude just had a list of names in September 2008, and was crossing names off the list to try and get the numbers to work and not go under. And I had no control over that situation. So didn't matter how large and how safe the company was, it wasn't safe for me.

Gabriel Flores  2:13  

Wow. So let's let's talk about first, I'm a sports junkie. What were you doing in the sports world?

Jessica Fialkovich  2:18  

Yes, I had a really interesting gig. So I came out of college, and I worked for the Eagles, the Philadelphia Eagles during college, and then I moved over to the Philadelphia Flyers, I was working in the NHL. But it was interesting timing, because it was when like, you know, Twitter, and YouTube and all these social media companies were starting. And I was I joke, I was the youngest person in the office. So they looked around. And it was right during the lockout, too. So we were pretty small team. And they looked around, they're like, hey, we need to figure out like how to monetize this stuff, how to use the data to sell more tickets. And so my role is ever evolving. But that basically was what I did is I kind of blended technology with ticket sales and tried to keep us on the cutting edge of what we're doing in order to sell more tickets, sell more sponsorships, and communicate with our fans more effectively.

Gabriel Flores  3:08  

So let's let's talk about the transition from sports to commercial real estate. First, let's tell them a little bit. What is exit factory, then how did that transition occur?

Jessica Fialkovich  3:18  

Yeah, so exit factor is an education and consulting firm helping business owners prepare for sale. So my latest group for the last 10 years, I've been doing mergers and acquisitions for small to midsize businesses. And I realized the the number one most common issue we have in selling a small business is that the owners either can't sell or they can't get what they want, because they haven't designed the business to be be sellable. And they haven't designed it to be desirable for the business buyer market. So at exit factor, we help people discover what is going to make their company more valuable, more profitable and more efficient, and eventually be saleable in the market.

Gabriel Flores  4:02  

Let's let's talk about the beginning of that, like how does a business how does a business or an entrepreneur, think about you know, how do they prepare their business to be sold in a year less?

Jessica Fialkovich  4:13  

Yeah. So I think the first thing is like just the realization that you can sell a business, you can sell any business, right? So we've sold in my career, we've sold very small businesses, you know, for like as little as $10,000, all the way up to the $30 million transactions, right? And if you you actually look at the marketplace, the average business just sells for about $300,000. So I think the first thing to do when you're designing for sales, realize that your business can be sold. I talked to a lot of entrepreneurs that are like it's too small, it's just me, it's not worth anything. You know, no, it might not be worth a million dollars, but it's worth something. And once you have that mindset shift, then I think what happens is you start to treat the business differently, right. It then becomes the asset that it is instead of just an extension of you, and I think, you know, we can go into tactics and all that kind of stuff. But that's, that's the overarching mindset changes like one, my business can be sold, right. And if I'm going to sell it, I have to treat it like a financial asset, the same thing like I would treat a stock or an investment, not just an extension of myself.

Gabriel Flores  5:21  

So like, we're logged into your career, did you kind of realize like, you know, what, exit strategy is important for entrepreneurs to know about, and then how did you kind of like create the concept and business to move forward?

Jessica Fialkovich  5:32  

Yeah, so it was about three years ago, when, you know, we were about seven years, my husband and I into our business brokerage practices. So we've done quite a few deals up to that point, and we're probably at three or 400. So there was a realization from the business side and seeing that a lot of our clients, you know, if you look at the general stats, in business brokerage, about 80% of the businesses that are listed for sale generally don't sell that given year. So huge, huge market that goes on sellable for various reasons. And then the like, kind of take a further step back. And this was more of a realization I've had in the last couple of years. It's like, Why have I become so passionate about this? Is I teased in the beginning there, like, my parents weren't entrepreneurs, but my whole family was generations before. And really what what broke? What broke my dad and not wanting to become a business owner have anything to do with business? Is Watching my grandfather go through what was his exit process? So my grandfather had a chain of pharmacies, like think about like the 50s, like style pharmacies, where they had like, soda pop counters are super cool. Yeah. So he had those pharmacies up in Pennsylvania. And he had banked like his whole retirement on, you know, selling that business down the road, but he never prepared for it. And he waited too long. So he waited until like the 90s, were when the CVS is in the records and all the big corporate chains that come in. And he really sold it for next to nothing, because he hadn't had the foresight, or really prepared that. And it ended up you know, I'd say it, you know, didn't destroy my family, financially for generations. But it definitely changed the dynamics, right. My dad then became responsible for, you know, financial care of my grandmother, my grandfather passed away and, and obviously, this entrepreneurial gene that had been in our family for generations that broke and so if I take a step back and think about not just my experience in my career, and watching some of our clients go unsold, but the reason I'm super passionate about it is because I've been through it personally with our family businesses as well.

Gabriel Flores  7:46  

Now, how do you now that you started your company, right? You, You created this company, helping entrepreneurs kind of scale and sell how do you actually attract new clients? How do you find entrepreneurs and engage them in conversation saying, Hey, you can actually sell this business?

Jessica Fialkovich  8:01  

Yeah, it's so I have been in this, this m&a business brokerage role for 10 years. So we've built up a fairly good reputation on being able to get deals done and being the experts to go to in the industry. I do a lot of speaking engagements. I've met a number one best selling book on the topic. But it's like one of those. I saw a post today for somebody who says like, hey, when does when do you become an overnight success. And there's that joke that it takes like 10 or 20 years to become an overnight success, right. But it's just been building my skill set and reputation over the years that now bring clients to us as kind of the go to place to prepare your business for sale.

Gabriel Flores  8:43  

Now, you just mentioned that you do have a number one best selling book first, what is the book? And then how did you actually go about creating the book?

Jessica Fialkovich  8:51  

Yeah, so the book is called getting the most for selling your business. It's available on Amazon and every other book retailer. But so it was like one of those slow than fast processes. So I kept notes for years on, and I knew I was gonna write this book eventually, but notes for years on what I wanted to include how I would structure it, all that stuff. And then in 20 2001, I was like, okay, now's the time, like, I'm going to do it. And so I hired a ghostwriter slash co author to help me author the book and get all the content out quickly. So that was the fast process. So we're able from my notes and interview conversations and things like that to actually turn around the writing of the book and in about four months, and then we partnered with publisher to get it out there.

Gabriel Flores  9:37  

So how did you go ahead and start the exit factor as far as the business goes, when when was like the determination saying, Okay, we've been doing the m&a for mergers and acquisitions for some time. I'm ready. What was that kind of an aha moment for you that says, I'm ready to become an entrepreneur myself and go ahead and open up this business.

Jessica Fialkovich  9:54  

Yeah, so it was, it was actually, you know, the pandemic that really I'm precipitated launching exit factor. So I've been an entrepreneur, since 2009 had been in wine and spirits and I owned our business brokerage offices. But with exit factor, we had it as a division of a business, our business, our business brokerage office about three years ago. And then when the pandemic hit, I thought a silver lining of the pandemic is that lots of people do business like this now, right? So we were able to pivot exit factor and launch it more as a virtual company. So all of our education and consulting services are delivered online through zoom. And once we were able to make that happen, I knew this was its own thing like this was no longer a division of my business brokerage firm. This was its own company, and it was going to take on a life of its own. So we relaunched rebranded the company earlier this year, we took on a new partnership as well, to grow it and make it big and services that extend across the US and eventually internationally as well.

Gabriel Flores  11:04  

Now, is this business self funded? Or did you have some financial like venture capital, gosh, grassroot effort, how are you financing it?

Jessica Fialkovich  11:11  

Yeah, we're 100% self funded. So I've, you know, been fortunate to have some business success earlier. I haven't used like SBA and debt financing in the past to launch other businesses, but this one is totally self funded all cash. So

Gabriel Flores  11:26  

So you mentioned one, you just mentioned the SBA loans that you've you've done some and you've actually had previous entrepreneurial experiences. What was your first entrepreneurial kind of endeavor?

Jessica Fialkovich  11:37  

Yeah, my first business was in the wine and spirits industry. So it was right after that 2008 layoff my husband and I kind of needed like an an early retirement break or something like that from corporate. So we decided to launch a business in the wine industry. And we ended up having a retail store, and then a small e commerce business that focused on luxury wine sales for wine collectors across North America. That business was called to canted. And we operated that for three years before we ended up selling it.

Gabriel Flores  12:11  

Wow. So what what how did that just kind of so you kind of scaled and sell that that was like your first experience? And then what was your next one.

Jessica Fialkovich  12:18  

And the next one was actually it was was the experience through that that one launched us into the business brokerage world? So we sold through a broker, we got to experience what that was like for small business owners. So after doing some investigation, we actually bought a business, a business brokerage firm. So we bought our first business brokerage office, and 13, early in 2013. And that's really for the last decade where I've been focused, we've purchased multiple acquisitions, to grow that company over the last 10 years. And we now operate locations in three different states for that business.

Gabriel Flores  12:56  

Nice. So you've been doing this for some time. So I'm going to provide the listeners some hopefully some free knowledge here. So what are what are some strategies that you know, you've learned over time that would help increase the likelihood that the brand will sell?

Jessica Fialkovich  13:11  

Yeah. So first and foremost, focus on profitability. So I see a lot of business owners, especially when we're first starting and growing our businesses. It's like this growth at all cost mentality, and we're not focused on profitability. And I think that's also like something that we hear a lot in the media, we hear all these big tech companies that never make any money, they just like spend, spend, spend and grow revenue. So focus on profit over revenue is the biggest strategy that you can have to increase the likelihood that your brand will sell and sell for for for more money. And then the second is that he can't be 100% focused on you, right. And I think this is something I've struggled with in the past too. As entrepreneurs, we want to control things we don't want to delegate. But if a business is 100% dependent on us, it makes it very hard to transition over time. So the key is to get out strategically get out of different roles and responsibilities in your business over time.

Gabriel Flores  14:09  

Yeah, you know, one thing I think entrepreneurs can really utilize to understand the profit versus revenue is a cash flow statement like use a cash flow statement because that that's going to give you an idea of how much cash you have right now not you know stocks and bonds or you have you know, liquidity elsewhere specific cash so if you stopped getting revenue tomorrow, how long can your business stay afloat with the cash on hand? And so that's a really really kind of good thing. Now what are what would you say Jessica, or what are like the top five mistakes businesses sellers make?

Jessica Fialkovich  14:44  

Yeah, well, we talked about the one I said like a lot of business owners don't think their business is sellable. Right. So that's one of the top mistakes. That one is probably tied with number two, which is most business owners think that their company's worth More than it is. So it's kind of like you can use the metaphor of a home, right. And sometimes if you go to sell a home, you might feel like, Oh, well, I put all this money into it this blood, sweat and tears, I should get why out of it, because that's what I put in. And ultimately, the value of a business is it's kind of an art form, but it's mostly a scientific formula. The most common formula is earnings defined as this, this metric called EBITA times a multiple equals the value of your business. So number two is they just overvalue the company. The third is they wait too long. So I have this line that I talked about in my keynote all the time where I say the first best day to start planning your exit or your business sale is the first day you start your business. The next best day is today. So what one Why is a big mistake is because most business owners think that we're going to sell our companies on this like specific timeline, and we're gonna plan it all out, we're gonna have all this time. But the truth is almost all business owners sell because some unforeseen personal experience happens in our life that triggers the sale. So you don't really have as much time as you think. So you have to run your business every day, like you're gonna sell it not have like this strategic planning timeline. So that's the third one is just they just wait too long, and they don't give themselves a lot of time. The fourth one is related back to profitability, but is having clean books and records, so clean financial records. And I think this is super important, not just for selling your business, but just for having options. And we mentioned like financing, right? If you have to raise money, you have to get debt to grow your business and things like that. It's all going to be determined by the cleanliness of your books and records and your financials. And the last one we've already mentioned, too, is just making the business to dependent on on them. It reduces the saleability reduces the value, but I also think about it too is like what if something happens to us? Like, what if we get ill? What if we, you know, have a ski accident? And we need to take some time off the business? What if we just want to take like a three week vacation? Right? So if the business is completely dependent on us, we're not able to do those things are able to sell. And it doesn't always have to mean like, you have to add a million full time employees. There's a lot of different options for delegation at this point.

Gabriel Flores  17:21  

You know, one of the things you mentioned was entrepreneurs thinking or business owners believing that their business is actually worth more than it is. Which you know, that's that's true to everybody. You know, you have a kid my kid is more developed than anybody right in my house is better than everybody is my car is the best. What? How does a business owner an entrepreneur? How do they value, you know, create a valuation for the business? So how does one go about valuing their business? And then what are some mistakes that you've seen? Like? Don't that is not considered a valuable asset? So stop that. So what are some of those things? Yeah,

Jessica Fialkovich  17:57  

so first big mistake is I would not do your own valuation. Right, I would have I would pay to have evaluation done, especially the first time so like, in our company, we call it an exit assessment, I say all the time, it's like just having like a baseline diagnostic report done by a doctor, you know, then once you understand the metrics and everything, then you can kind of track those KPIs over time. But we're as owners, we're too close to it. Right. So we're always going to either over undervalue something, and hiring evaluator that is trained and doing that has access to the records in terms of comparative or comp sales in your industry is something that's worth its weight in gold to pay for.

Gabriel Flores  18:41  

Now, would you say starting this kind of business, you know, the valuation and kind of Mergers Acquisitions kind of selling? Has it been difficult? Or has it been you feel like it's been kind of easy because of your experience in the past?

Jessica Fialkovich  18:53  

No, it's so it's a very difficult industry to get into and to to be successful in honestly, like the people that are in this industry and very successful, they put in a lot of work, not to just build and develop their companies, but to continue to educate themselves. I mean, look, we when we're looking at selling businesses and preparing businesses for sale, like we've got to be aware of what's going on with different industries, what's going on in microeconomics, what's going on in macro economics, interest rates, inflation, all this stuff, and bringing it together and providing recommendations for businesses to develop and sell is very challenging. So outside of just like, you know, building your company in the exit planning industry, like you have to build your knowledge base and that's a continual learning process that never ends which is honestly what I love about it, but it is it makes it very difficult.

Gabriel Flores  19:48  

Yeah, yeah. You know, building you know, building your company is very difficult, but building the brand is just as difficult, right? Because that's kind of what people begin to notice you about, and that's where you kind of get those those As a word of mouth referrals, so how do you, you know, for those folks that are listening, some people may not know this, but there are websites out there where you can go look for companies for sale right there. They're actually they're posted online, kind of like a Zillow for businesses. Yep. But and I think that's very, very interesting. But what would you say, you know, how do you brand yourself? How do you market your company to kind of engage new clients?

Jessica Fialkovich  20:26  

Yeah, our, our primary focus on marketing is actually education. Right? So So like you said, there's there is it's there's like this niche industry of businesses that are for sale. And, and what I've found is that most most entrepreneurs are actually not even aware of that industry exists. So my first hurdle in marketing always is education, about small business m&a about small business Exit Planning, right? People don't know that that's a thing. So education first. And that's, that's usually in the form of content. So whether it's doing podcast interviews like this, you know, writing for anchor entrepreneurs, speaking engagements, things like that. So that's our primary focus, and marketing is delivering education and content. And then we have the second marketing piece, it's like, Okay, now, this is why you'd want to work with exit factor, right? But we have to overcome the education hurdle first.

Gabriel Flores  21:20  

So let's, let's talk about education. Because I'm a big like, I like I look at this podcast as an educational podcast. And so listeners, I really hope you find this as educational informative, as I do as being the host. But what kind of education do you provide for entrepreneurs? Like, what are some of the questions that they're asking you that they're unaware of? Like? How do I like what, what are the questions that they might be asking?

Jessica Fialkovich  21:43  

Yeah, the first, the first question most popular when we get is how much is my business worth? Right? Like? How do I calculate the value, all that kind of stuff? So we do we provide a lot of content and a lot of answers around that. And through our paid education programs, we have a whole series on that. The other type is just how how businesses are sold. Like I didn't even like I got a lot of questions like I didn't even know I could sell my small business, like, how does that whole process work and education around the deal process and what to expect and things like that. So those are the two big general buckets. And that's where we focus most of our educational content. There's obviously like, you know, deal specific questions and business specific questions that that follow. But the majority of the topics are around what's my business worth? And how does this whole thing work? Right?

Gabriel Flores  22:33  

Yeah. What What kind of what are those things that keep you up at night for your business? What do you think about and kind of, what are those things that you're always kind of constantly thinking about in the background?

Jessica Fialkovich  22:43  

Yeah, it's, I really worry about my clients a lot. So it's not necessarily my business is it's more about, you know, did I make sure that I forwarded this article on do we make sure that we added this topic to an expert webinar about, you know, tax mitigation? Like, did I forget to tell this client, you know, this, did I make the right assessment there? You know, especially in a market like we're in right now, it's ever changing and the dynamics of when is the right time to sell? To answer that question is really hard right now, with what's going on in the economy? So that's the kind of stuff that keeps me up at night. It's like, did I make the right call? Did I provide enough of the right resources to our clients in our community?

Gabriel Flores  23:25  

This, let's talk about that a little bit. Let's go, I want to hear kind of your process of thinking, when is the right time to sell?

Jessica Fialkovich  23:34  

Yeah, so it's a complicated question. But if you look back at the data for the last 20 or 30 years, that small business sale market has been relatively steady, right? So my answer really, is that if you build a company that has a good foundation that's profitable, like we talked about, that's not reliant on you, you should be able to get a good value for that company, no matter what's going on the economy, those companies are rare. So if you look at like supply and demand, just like an economic principle that can be applied to any industry, the supply of well designed small businesses is very limited, you know, and the demand, the number of buyers that want to buy those businesses is overwhelming compared to the supply. So because of that dynamic, it's really held the fluctuations in the market pretty steadily steady, no matter what type of environment we're in. Now, I'm sorry, go for it. No, no. As I say, that being said, like you do have to take into consideration. You know, inflation is one thing and I think inflation is something all small businesses should watch for, but it's pretty, I wouldn't say it's easily solved, but it's easily controlled, right? You increase your costs the same way. You increase your prices at the same rate as your costs are going up or you try and cut expenses to balance and can sustain your profitability, the harder one is the interest rates right? Because at at some Point buyers need capital, they need capital to buy a business. And as interest rates are going up on all debt, it's increasing the cost of capital and reducing the funds they have. So that being said, like we are watching that it hasn't really affected the market a lot, because you see some creative solutions getting done in deals in terms of sellers doing seller financing or promissory notes more earnouts. Like there's been creative solutions to address that. But does it affect it long term? Sure. So I don't know, it's really hard to determine that. I think, ultimately, the right time to sell is based on when the owners ready to write. And I don't think all of these dynamics should, as entrepreneurs affect our decision, whether we sell or not, it's more ultimately going to be a personal decision if we're ready or not. You know,

Gabriel Flores  25:53  

one of the things you mentioned to is industries, the diversification of industries. Have you seen maybe like in your world, that there's one industry that sells more so for example, if there's an entrepreneur at home thinking, You know what, maybe I will want to get in this m&m, m&a, mergers, acquisitions kind of business, what industry would you recommend that kind of focus on?

Jessica Fialkovich  26:14  

Yeah, it's a common question I get. There's so many different industries, like any business, you think about like there is deals getting done in that industry, what I usually tell people to do is find not necessarily find an industry that intrigues them, right. But if you start less focusing on industry, but focusing on the dynamics of the business and finding businesses where you can add substantial value to so give you an example, right? There's a lot of businesses that are trading in construction and blue collar trades right now, because those industries are heavily owned by the baby boomer generation, and that generation is retiring, right? So I've seen a number of people that have very strong marketing and sales backgrounds go after acquisitions in that industry, because typically, those businesses in those industries are not strong, and marketing and sales. So what the buyers are able to do is say, Hey, I'm super strong, and marketing and sales, and I can apply it to this specific business. It doesn't matter if it's an roofing age back or a professional service provider, but that focus on where can I add substantial value and focus less on the industry? Obviously, it's got to be an industry that's attractive and sounds fun, and you're going to enjoy, but instead of narrowing and saying like, Hey, I come from sports, I have to stay in sports being more open to what the future can hold.

Gabriel Flores  27:38  

Yeah, that's a great point. In fact, I, there's just one gentleman, he actually does these nano website flips. And so essentially just goes and checks out websites, and to your point, add the value of sales and marketing, right, kind of saying, Hey, I will purchase your website from you buy your domain. And then I'm just going to do some SEO on the background, a little bit marketing sells, and then resell it. Yep. And it's really quite interesting, because it's just basically creating another value proposition that hasn't been exploited. Now, most of these businesses are profitable, and these websites are great. They just haven't exploited another different value proposition, which is the sales and marketing arm. Right? It's very, very unique kind of the way they see that now, what would you say, you know, let's, let's kind of just give some, give some advice for the listeners, either folks that might be interested in kind of getting into the mergers and acquisition world, or entrepreneurs that are about to about to sell? What kind of advice would you give them?

Jessica Fialkovich  28:40  

Yeah, so on the people that are about to sell, or even if this conversation has painted, like, I think I want to sell at some point, I define your starting point, like I'd have an exit assessment or evaluation done of your company today and just understand where you are, like going back to that, that medical metaphor, like basically, what it'll tell you is what's operating really well in your business and what needs a bit of an operation, right. And I think once you know where you're at, you can then better design goals for the future and a roadmap to get there. So that's, um, that would be my first and foremost, and then for both groups, and everybody is just education. Like, this world does exist small businesses sell every day. 1000s sell every single year. And there's a ton of opportunity, whether you're a buyer, your seller, or an advisor in this industry, and I think it's just gonna grow for the years and years to come.

Gabriel Flores  29:33  

Yeah, no, that's a great point. Especially one of the things you continuously hammered home throughout this episode was education. So for the listeners at home, how can they find your education, your website, your social channels, how can they connect with you?

Jessica Fialkovich  29:46  

Yeah, thanks for asking. So we put together an easy landing page if you go to exit has links to all of our social media. It's got a free report on there and also my email if you just have a random question that you want to reach out about

Gabriel Flores  30:00  

perfect. And for those listening all this information will also be on the shades of entrepreneurship newsletter, I'll also write up a blog post. In fact, I'm thinking I might want to do one about cash flow statements just because of the importance of you know, being profitable versus because, again, creating a revenue doesn't mean you're profitable. I, you know, the podcast has finally became profitable after a year and a half. So it's, it takes some time, because you have to account for all these costs that you probably don't really think about all those little hidden sunk costs. Jessica, thank you so much again, for your time, I really do appreciate it again, please follow me at the shades of Again, exit for all the information and it will be on the newsletter as well as the blog. I'll go ahead and post some information on the website as well for that. Jessica, is there anything else you'd like to say before we depart?

Jessica Fialkovich  30:51  

No, I think this is a great conversation. I'm hoping that I gave your listeners some things to think about. And some things to plan for in the future. No, I'm

Gabriel Flores  31:01  

really thinking like Man Can I could I skill the production company and get rid of it? Just because not even right now. So I think we're, I think we now have a little bit more. So kind of wheels turn it in this little cranium of mine appears I'm kind of excited about it goes a little got a little thinking to do. So Jessica, thank you again, so much for your time. The founder of the exit factory Jessica, you can follow me on the shades of or you can follow us at at the shades of E on all the social channels. So thank you and have a great night.

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