SDE Calculator
Find a business's seller's discretionary earnings by adding the owner's pay, perks, interest, and depreciation back to net profit. SDE is the earnings figure most main-street deals are priced on.
SDE adds back the owner's pay and discretionary spending to show the full earnings a single owner-operator takes home. Most main-street businesses trade at roughly 2x to 4x SDE. Value it at your own multiple.
Why SDE is the number that matters for small deals
A small business tax return is written to minimize profit, not to show a buyer what they would earn. Owner salary, a family member on payroll, the truck, the phone, a one-time legal bill: these all depress reported profit but would go away or transfer to the new owner. SDE adds them back to reveal the real earnings the business produces for one hands-on owner.
Once you have SDE, valuation follows quickly, because main-street businesses are quoted as a multiple of it. Get the SDE right and the rest of the analysis stands on solid ground.
Frequently asked questions
What is SDE?
Seller's discretionary earnings is pre-tax net profit plus the owner's total compensation, interest, depreciation, amortization, and one-time or personal expenses. It shows what a single owner-operator actually takes home.
How is SDE different from EBITDA?
EBITDA does not add back the owner salary, so it suits businesses run by a hired management team. SDE adds owner compensation back and fits owner-operated small businesses, which is most of the main-street market.
What multiple of SDE do businesses sell for?
Most main-street businesses trade for roughly 2x to 4x SDE, depending on size, growth, industry, and how dependent the business is on the current owner.
Which add-backs are legitimate?
Common add-backs include the owner salary, personal vehicle or travel run through the business, one-time legal or repair costs, and non-cash charges like depreciation. A buyer should verify each one in diligence.
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