About the Seller's Discretionary Earnings Calculator
This seller’s discretionary earnings (SDE) calculator works out the total financial benefit a small business provides to one full-time owner-operator — the figure business brokers use to price most companies selling for under a few million dollars. Start from pre-tax net profit on the tax return or P&L, then add back the owner’s salary and benefits, interest, depreciation and amortization, one-time expenses and personal costs run through the business, and subtract any non-operating income.
It is built for owners preparing to sell, buyers checking a broker’s listing, and advisors normalizing financials. Enter an SDE multiple and the calculator gives a valuation range (the multiple ± 0.5), along with EBITDA, adjusted EBITDA after paying a market-rate manager, and SDE as a percentage of revenue.
Add-backs must be documented and genuinely discretionary or non-recurring — buyers and lenders will challenge anything that is really a cost of running the business. SDE assumes one owner; if two owners work in the business, add back only one salary and treat the other as a normal expense. Multiples vary by industry, size, growth and risk, so treat the value as a starting point, not an appraisal.
With the default inputs, the seller's discretionary earnings (sde) is $233,000.00. Change any value above to recalculate instantly.
How to use the seller's discretionary earnings calculator
- 1Enter net profit from the most recent full-year P&L or tax return.
- 2Add the owner’s salary and benefits for one working owner.
- 3Enter interest, depreciation and amortization, and income taxes if profit is after tax.
- 4Add documented one-time and personal expenses, and subtract non-operating income.
- 5Enter an SDE multiple to see a ballpark valuation range.
Formula and method
SDE “recasts” the profit and loss statement to show the cash benefit available to a single owner-operator. Starting from net profit, it adds back the owner’s own compensation and perks (a new owner can decide how to pay themselves), financing and tax items that depend on the current owner’s choices (interest, income taxes), non-cash charges (depreciation and amortization), and expenses that will not recur or are personal. Income that is not part of operations is removed.
Small businesses are commonly priced as SDE times a market multiple, which reflects industry, size, growth, owner dependence and risk. The calculator shows your multiple and ±0.5 around it. EBITDA adds back only taxes, interest and D&A; adjusted EBITDA starts from SDE and deducts what it would cost to hire a manager, the measure buyers use for larger or absentee-run businesses.
- SDE
- Seller's discretionary earnings
- D&A
- Depreciation and amortization
- Multiple
- Market SDE multiple for comparable businesses
Worked examples
Service business with $900k revenue
Net profit of $120,000 plus owner salary ($70,000), benefits ($12,000), interest ($8,000), D&A ($15,000), one-time ($5,000) and personal ($6,000) expenses, less $3,000 of non-operating income, gives SDE of $233,000. At 2.5× that is about $582,500, with a $466,000–$699,000 range.
Small owner-operated shop
The shop reports only $45,000 of profit, but the owner also takes a $50,000 salary and $8,000 of benefits. With interest, depreciation and personal costs added back, SDE is $115,000 — 28.75% of revenue — and a 2× multiple suggests about $230,000.
C-corp reporting after-tax profit
Because net profit is after $25,000 of corporate tax, taxes are added back along with the owner’s pay, D&A and a $12,000 one-off cost, while $5,000 of investment income is removed. SDE is $227,000, worth about $681,000 at 3×.
Frequently asked questions
What is seller’s discretionary earnings?+
SDE is pre-tax profit before the owner’s compensation, interest, depreciation and amortization, and one-time or personal expenses. It represents the total cash benefit one full-time owner-operator gets from the business, and it is the standard earnings measure for small business sales.
What is the difference between SDE and EBITDA?+
EBITDA adds back interest, taxes, depreciation and amortization but treats the owner’s salary as a normal expense. SDE also adds back the owner’s salary and perks. SDE is used for owner-operated main-street businesses; EBITDA is used for larger businesses run by managers.
What is a typical SDE multiple?+
Many small businesses sell for roughly 1.5× to 4× SDE, with lower multiples for owner-dependent, declining or very small businesses and higher multiples for growing, recurring-revenue businesses with strong systems. Check recent comparable sales in your industry.
What add-backs are acceptable?+
Commonly accepted add-backs include one owner’s salary and payroll taxes, owner health insurance and retirement contributions, interest, depreciation, amortization, documented one-time costs, and personal expenses paid by the business. Recurring operating costs are not add-backs.
What if there are two owners working in the business?+
SDE assumes one owner-operator. Add back only one owner’s compensation; the other owner’s pay should be adjusted to a market wage for the role they perform and left as an expense.
Should I use last year or an average of several years?+
Buyers often look at the trailing twelve months and a weighted average of the last three years. A single strong year may be discounted if earnings are volatile, so it helps to calculate SDE for each year.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.