Glossary
Seller's discretionary earnings (SDE)
Seller's discretionary earnings is the total annual financial benefit a single full-time owner-operator receives from a business. It is calculated as net profit before tax plus the owner's salary and payroll taxes, the owner's benefits, interest, depreciation and amortization, and legitimate one-time or personal expenses run through the business.
Most small businesses are priced as a multiple of SDE.
The trap: SDE is easy to inflate with weak add-backs, and it ignores the cost of replacing equipment and of paying someone to run the business. Rebuild it from tax returns before trusting it. See What SDE is and how to rebuild it.