Question 1

What is Seller's Discretionary Earnings (SDE)?

Accepted Answer

SDE is the total financial benefit a single owner-operator receives from the business. Start with net profit, then add back owner salary, personal expenses run through the business, one-time costs, non-cash expenses (depreciation, amortization), and interest.

Question 2

How do you calculate SDE?

Accepted Answer

SDE = Net Income + Owner Salary + Owner Perks + One-Time Expenses + Depreciation + Amortization + Interest. The goal is to show the true earning power of the business under a new owner.

Question 3

What is the difference between SDE and EBITDA?

Accepted Answer

SDE includes the owner's salary and personal benefits in the add-backs. EBITDA does not, because it assumes the business will hire a manager. SDE is used for small owner-operated businesses; EBITDA is used for larger companies or those with professional management.

Question 4

Why does SDE matter for selling a business?

Accepted Answer

Buyers multiply SDE by an industry-specific factor to determine what they will pay. A higher SDE means a higher sale price. Cleaning up your financials and properly documenting add-backs before listing can significantly increase your valuation.

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