SDE (Seller's Discretionary Earnings)
Net Income + Deducted Income Taxes + Owner Comp + Interest + D&A + Non-recurringSDE represents the total economic benefit available to a single owner-operator. It is the most commonly used earnings metric for small business acquisitions (typically under $5M in revenue). SDE adds back the current owner's compensation and benefits because the buyer will replace them.
How it's used in a deal
Primary metric for businesses under $5M revenue. Used with SDE multiples (typically 2.0x-4.5x) to arrive at an implied valuation range.
Worked example
Fictional Precision Auto Service, FY 2024. Missing inputs remain unavailable.
SDE: Not available. Requires reported net income, deducted income taxes, owner compensation, interest, depreciation and amortization.
Inputs and supported results from our fictional sample deal report — Fictional, incomplete example. No real customer documents, verified source support or independent accountant review are supplied.
Free SDE Valuation Calculator
A quick screen, not an analysis — real deals need normalized earnings, not reported ones.
Implied valuation range
$1,125,000 – $1,800,000
Midpoint $1,462,500 at 3.25x SDE
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See report pricingImportant caveat
SDE assumes one owner-operator. For businesses with multiple partners or significant management teams, EBITDA may be more appropriate.
Frequently asked questions
What is a typical SDE multiple for a small business?
Most Main Street businesses sell for 2.0x to 4.5x SDE, depending on industry, growth, customer concentration, and how transferable the business is without the current owner. A $450K-SDE business would typically be valued between roughly $900K and $2M.
What's the difference between SDE and EBITDA?
SDE adds back the owner's full compensation because it assumes the buyer replaces the owner. EBITDA instead assumes management stays in place and leaves a market-rate salary in the expense base. SDE is used for owner-operated businesses; EBITDA for larger, management-run companies.
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Related metrics
Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.