SDE Calculator (Seller's Discretionary Earnings)
Calculate seller's discretionary earnings (SDE) by adding back owner pay, perks, interest, depreciation and one-time costs to pre-tax profit, then estimate a small business's value with an SDE multiple.
How it works
SDE = net profit before taxes + one owner's salary + owner benefits and personal expenses + interest + depreciation and amortization + one-time expenses − non-operating income · Business value ≈ SDE × SDE multiple · SDE margin = SDE ÷ revenue
Seller's discretionary earnings is the total cash benefit one full-time owner-operator takes out of a small business. It starts with pre-tax profit and adds back the owner's own pay and perks, financing and non-cash costs, and one-off expenses, while removing income a buyer will not receive. Business brokers price most owner-operated "Main Street" companies as a multiple of SDE (often around 2–3×, higher for stable, growing or less owner-dependent firms); larger companies are valued on EBITDA instead, after paying a market salary to management. Add-backs must be documented to be credible to a buyer or lender.
Worked example
Pre-tax profit of $150,000 plus add-backs of $80,000 owner salary, $12,000 perks, $8,000 interest, $15,000 depreciation and $5,000 one-time costs ($120,000.00 in total), minus $3,000 of non-operating income, gives SDE of $267,000.00 — 29.67% of $900,000 revenue. At a 2.5× multiple the business is worth about $667,500.00, with a range of $534,000.00 – $801,000.00 at 2.0–3.0×.
Sources: BizBuySell — Seller's Discretionary Earnings overview · BizBuySell — Add-backs for SDE
Frequently asked questions
How do you calculate SDE?
Start with net profit before taxes, add back one owner's total compensation, owner perks paid by the business, interest, depreciation and amortization, and genuinely one-time expenses, then subtract non-operating income.
What is the difference between SDE and EBITDA?
EBITDA assumes the business pays a market salary to its manager; SDE adds the owner's salary back. SDE is used for small owner-run businesses (typically under about $1–2 million of earnings), EBITDA for larger companies with professional management.
What SDE multiple do small businesses sell for?
Most small businesses change hands at roughly 2–3× SDE, but the range is wide: recurring revenue, growth, low owner dependence and a strong industry push it up; customer concentration, declining sales or heavy owner involvement push it down.
Can I add back more than one owner's salary?
Standard practice adds back only one working owner. Other owners who work in the business must be replaced by paid staff, so their salaries stay as an expense unless their roles truly disappear.
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Planning estimate only. Real results depend on your actual costs, prices, taxes and market — check the figures with your accountant or adviser before making business decisions.