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What does your business really earn for its owner? Build your SDE one add-back at a time.
SDE is the number most small businesses are priced on: pre-tax profit plus the owner's pay, the perks and the costs a new owner will not carry.
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Business Calculators / SDE Calculator
SDE Calculator
The total yearly benefit to one hands-on owner.
Recast onto your net profit.
How it is calculated
Next steps
Your SDE is where pricing starts. Turn it into a value range with the Business Valuation Calculator, then test whether a buyer could finance it with the Debt Service Coverage Calculator.Follows the standard pre-tax SDE method: only one owner's pay is added back, and a second working owner counts as a cost at a market wage. Have a CPA or an EDGE advisor check your figures before you list.
Seller's Discretionary Earnings (SDE) is the full yearly benefit a business gives one owner who works in it full time. It is the cash flow figure most privately held businesses under about $5 million in revenue are priced on, and the starting point buyers and SBA lenders use before they apply a multiple.
The calculation starts from pre-tax net profit and recasts it by adding back what a new owner will not inherit: one owner's pay and benefits, depreciation and amortization, interest, and personal or one-time costs the business paid. Those add-backs get multiplied by the valuation multiple, so getting them right moves the price a lot. Make sure every one can be backed by records.
Questions
SDE Calculator: frequently asked questions
What is Seller's Discretionary Earnings (SDE)?
SDE is the total financial benefit a business delivers to a single owner-operator in a year. It rebuilds the income statement as if a buyer were about to step in: start with pre-tax profit, then add back the owner's pay and perks plus non-cash and one-time items a new owner will not carry. The result is the cash a hands-on owner could expect the business to produce.
Which profit number do I start with?
Use pre-tax net profit (net income before income tax) from your tax return or profit and loss statement. Use a full year, ideally the most recent one, and use the same year for every add-back.
Why does it ask how I paid myself?
An owner's draw is not an expense, so it is already inside net profit and adding it back would count it twice. A salary through payroll is an expense, so it, and the payroll taxes on it, come back in.
Why can I only add back one owner's salary?
SDE describes the business with one owner running it. If two owners both work in the business, the buyer will have to replace the second one, so that pay stays as a real cost.
Which add-backs hold up, and which do not?
Strong add-backs are documented and clearly personal or one-time: the owner's health insurance, a personal vehicle, a one-off legal bill. Weak ones are recurring costs relabelled as one-time, family on the payroll who do real work, or anything without receipts. Buyers and lenders test each one.
What if I own the building the business operates in?
Rent should be at market rate. If the business pays you more than market, the excess is an add-back; if it pays less, the gap is a negative adjustment, because a buyer will pay market rent.
My business shows little or no profit. Is that a problem?
Not always. Many owners run the business to keep taxable profit low, and SDE adds those costs back. What matters is whether the add-backs are real and documented.
How is SDE different from EBITDA?
SDE assumes the buyer does the owner's job, so the owner's pay is added back. EBITDA assumes a hired manager, so a market salary for that role stays as a cost. Our SDE and EBITDA Calculator shows both.
What do I do with my SDE once I have it?
Multiply it by a fair multiple for your industry to get a value range, then check that a buyer could finance that price. An EDGE advisor can build a full recast and valuation with you, at no cost.
Is this an appraisal or financial advice?
No. It is an educational estimate based on what you enter. Have a CPA or an EDGE advisor verify your figures before you list or make an offer.
Next Step
Put these numbers to work on a real deal.
Buyer's EDGE is free: save target businesses, model each deal in the Acquisition Center and learn the process in Acquisition Academy. Selling? The Seller Portal starts a confidential sale. Either way, an EDGE advisor can help from the first conversation through closing, financing included.