SDE Calculator
Calculate a business’s Seller’s Discretionary Earnings and see an implied valuation range for its industry — free, instant, no signup.
Full service business range: $336,000 – $504,000
SDE vs. EBITDA: which one values a small business?
Both metrics start from net profit and add back non-cash and non-operating expenses. The difference is what happens to the owner’s paycheck. EBITDA assumes the business already runs on professional management — it doesn’t add back a salary, because someone still has to be paid to run the place. SDE goes further and adds the owner’s salary and personal perks back on top, because in a small, owner-operated business the owner’s take-home pay is really part of what a buyer is purchasing.
As a rule of thumb, SDE is the standard for deals roughly under $1-5M in value, where a single owner-operator is expected to run the day-to-day. Once a business is large enough to already carry a management team, buyers and lenders switch to EBITDA instead.
What counts as an SDE add-back
An add-back is any expense on the books that benefits the owner personally, or won’t recur under new ownership — not a real operating cost the business needs to keep running.
| Add-back | Why it’s added back |
|---|---|
| Owner salary | A new owner may take a different salary or none at all — this is the buyer's earnings, not a fixed cost. |
| Owner health insurance / benefits | Personal coverage run through the business, not an operating necessity. |
| Personal vehicle, phone, travel | Common owner perks booked as business expenses. |
| One-time / non-recurring costs | A lawsuit settlement, a one-off repair, a move — costs that won't repeat under new ownership. |
| Depreciation & amortization | Non-cash accounting entries, not real money leaving the business. |
| Interest on business debt | The seller's financing costs — a buyer's own loan terms will differ. |
| Above-market family salaries | Family members on payroll at above-market rates for work they don't actually do. |
Mistakes buyers make with seller-provided add-backs
- Trusting the add-back list without documentation. Every add-back should trace to payroll records, receipts, or tax filings — not just the seller’s word.
- Letting recurring costs slip in as “one-time.” A repair, a legal fee, or a “one-off” marketing push that actually happens most years inflates SDE if it’s added back every year.
- Adding back family salaries without verifying the work. If a family member on payroll genuinely works in the business, that’s a real cost a buyer will likely still need to pay someone.
- Skipping the tax returns. A cleaned-up seller P&L can differ sharply from what was actually filed — always reconcile SDE against 3 years of tax returns, not just the broker’s summary.
- Forgetting to subtract a replacement manager. If you won’t run the business day-to-day yourself, back out a market-rate manager salary from SDE before valuing the deal.
Frequently asked questions
What is Seller's Discretionary Earnings (SDE)?
SDE is a business's net profit plus every expense that benefits the owner personally rather than the business itself — owner salary, perks, one-time costs, and non-cash charges like depreciation. It's the standard cash-flow metric used to value small, owner-operated businesses (as opposed to EBITDA, which is used for larger companies with a management team already in place).
What's the difference between SDE and EBITDA?
EBITDA (earnings before interest, taxes, depreciation, and amortization) assumes the business already pays market-rate management — it doesn't add back an owner's salary. SDE goes one step further and adds back the owner's compensation and personal perks too, because in a small owner-operated business, the owner's pay is really part of the profit a new buyer would take home. SDE is the standard for deals under roughly $1-5M; EBITDA takes over for larger, professionally managed businesses.
What counts as a legitimate SDE add-back?
A legitimate add-back is a real expense on the books that a new owner either wouldn't have to pay, or would pay differently — owner salary, owner benefits, one-time expenses, non-cash charges like D&A, and interest on debt the buyer won't assume. It should be documented (payroll records, receipts, tax returns), not just a number the seller says to trust.
What SDE multiple should I use to value a business?
It depends heavily on industry, size, and risk. Laundromats and other recurring-revenue, low-labor businesses often trade at 3-4x SDE. HVAC and trades run 2.5-3.5x. E-commerce brands run 2.5-4x depending on brand strength and ad dependency. Restaurants are typically the lowest at 1.5-2.5x given thin margins and key-person risk. Most general service businesses land around 2-3x. Larger, more diversified businesses with a management team in place command the high end of any range.
How do buyers get burned by seller-provided add-backs?
The most common mistake is accepting a seller's add-back list without verification — an inflated 'one-time expense' that actually recurs every year, a personal vacation booked as a business trip, or a family member's salary added back without proof they didn't do real work. Always ask for documentation on every add-back and run the last 3 years of tax returns, not just the seller's cleaned-up P&L, before trusting an SDE number.
Does SDE include the new owner replacing themselves with a manager?
No — SDE assumes the buyer works in the business themselves, the way the current owner does. If you plan to hire a manager instead of running the business day-to-day, subtract a market-rate manager salary from SDE before valuing the deal — otherwise you're valuing earnings you won't actually keep.
Related free tools
- SBA Loan Calculator — check whether this SDE can service the debt on an acquisition loan.
- Startup Valuation Calculator — for revenue-multiple or pre-revenue valuations instead.
- Break-Even Calculator — see how many sales cover the business’s fixed costs.
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