Buyers are hunting for profit leaks in your business. And when they find them, they'll use them to slash the price they pay for your valuable business. Here's how to plug the three profit leaks that everybody can find with just a little bit of looking.

Number one, audit your expenses for waste. Things like unused software or extra warehouse space or overstaffed shifts are bleeding cash from your business. You're so close to your business.

You may not even notice that these things are there. Check, find them, fix them. Number two, check your billing and collections, slow invoicing or overdue receivables are hidden profit killers.

If you haven't looked at your DSO, your day's sales outstanding lately, pay attention to this, dig into it and tighten it up. And you'll be glad you did because you'll get a higher price for your business. Number three, review your warranty and service policies.

If they're too generous or more likely, if they're mismanaged, they'll eat straight into your margins. Fix these now and buyers will see a stronger, healthier business, and they'll pay you more for it. Let's dig a little deeper into each one of these things.

And I'll share with you ways that you can prevent some of the negative phishing that buyers are doing to look for reasons to reduce their offer. These profit leaks are not only going to kill the value of your business. It's going to also give the buyer the opportunity to fix things immediately and take money to the bottom line that you should be taking to the bottom line right now today.

Let's say it takes 18 months for your deal to close or even six months for your deal to close for your business. Wouldn't you want to make the extra profit during that six month window or that 18 month window? All right, each one of these things, let's take them one by one. Audit for operational waste.

This is all about reviewing software subscriptions, maintenance contracts that you have with people who are supplying you, looking for underutilized assets that are in your business that you could either sell off or just remove or eliminate that will save you money. You want an example of this? If you have a piece of machinery that's sitting in the corner of your business that's not being used now, you should look at that piece of machinery and say, do I have the ability to use this and rent out some of my capacity to someone else who can make that machine productive again? Or can I sell that piece of machinery so that it's not taking up space and I'm not paying the lease on it every single month? Is there an opportunity for me to get out of that lease or for me to sell the piece of equipment and pay off either the financing or the lease on it? These types of things are incredibly valuable for bringing more money to the bottom line. And if buyers see that you're focused on that, it's a good indicator that you're focused on everything else in your business.

Let's also look at overtime on the shifts that your workers are working. Is the overtime really necessary? And what is the return on investment for that overtime? If you don't examine this now, your buyers are certainly going to examine it and they're going to reduce their sale price by the amount of overtime that is in the business that is leaking profit out of the business. Reducing overtime that is not productive is money that will fall directly to the bottom line.

It's money that could be going into your pocket and it's money that will make your business more valuable. All right. Number two is tightening billing and collections.

So late invoicing delays cashflow. It makes you and your business look disorganized and it's money that you could be putting to work for you. Think of it this way.

If you had $100,000 that was owed to you and it took an extra 30 days to get to your bank account. If you took that $100,000 and invested it in a 7% vehicle that provided you with a return on your investment, you'd be making money on that to the tune of 7% on the $100,000 instead of having somebody else make money on your $100,000. This is the way a buyer is going to look at this.

And this is the way you should be looking at it. Money that's not in your pocket is money that's working for someone else. Money that falls to the bottom line for you is money that should be working for you.

Cutting your days sales outstanding, which is your accounts receivable measure from 60 to 30 days frees up cash and it also improves the buyer's perception of you as an organized business owner. All right. Number three is fixing your warranty and service policies.

You standing behind your products, standing behind your service is noble, it's valuable, and it could be a competitive advantage for you. You need to have very tight tracking on how your warranties are being redeemed and whether your service contracts are being used to their full capacity. If you find that there's abuse of your warranties or abuse of your service contracts, you've got to tighten up by making certain that your policies are followed to the letter.

If you can reduce your warranty claims by 40 or 50% by simply setting proper expectations during point of sale, that's money that could fall to the bottom line. If you can implement your service contracts in a way that helps your company customers understand the value of preventive maintenance versus waiting until something breaks down and exercising their service contract, you can not only potentially help prolong the life of the things that they're buying from you and generate goodwill and referrals from it. You can also reduce the amount of service calls you receive.

Fixing your warranty and service policies not only helps bring money to the bottom line, it signals good management. Buyers spot these profit leaks during their due diligence process and they're going to reduce their offers to you because they're going to think that they are indications that the rest of the management of the business is sloppy. You're probably not going to have time to fix these profit leaks when you're in negotiations, especially if you have a tight due diligence window.

So fix them now, whether it's a year or three years before you sell. Don't sell your family business until we talk. I will help you find and fix every profit leak in your business so buyers will see the maximum value your business can demand and you will walk away with the highest selling price.

In our next show, I'm going to explain to you why cutting the wrong expenses can actually lower your sales price. That's right. Today we talked about cutting some of the things that are leaking profit.

In our next show tomorrow morning, I'm going to explain to you how cutting the wrong things can absolutely screw your bottom line results when you go to sell your business. I'm Dave Lorenzo. Thanks for joining me.

We'll see you back here again tomorrow.