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SDE Multiple Valuation Calculator

Enter the seller's discretionary earnings and a valuation multiple.

Result

$518,000.00
$185,000.00
2.80×

How it is calculated

The estimate is a single multiplication: value = SDE × multiple. SDE is the annual seller's discretionary earnings in dollars, that is, the profit one owner-operator takes out of the business in a year after the add-backs have been made. The multiple is a unitless factor (how many years of SDE a buyer is willing to pay). The result is shown in US dollars with two decimals, and the multiple is displayed with two decimals followed by ×. Both inputs must be greater than zero; a zero or negative SDE or multiple gives no result. The tool does not adjust for debt, cash, inventory, real estate or working capital, so treat the figure as an enterprise-style ballpark, not a price offer.

Worked example

A small online shop reports $185,000 of SDE for the last twelve months and comparable sales suggest a multiple of 2.8. Multiply: 185,000 × 2.8 = $518,000.00. If the seller asks $600,000, that corresponds to a multiple of about 3.24 (600,000 / 185,000), so the asking price assumes a stronger business than the 2.8 used here. Changing the multiple to 3.0 would raise the estimate to $555,000.

Try this example →

Common mistakes

  • Using net profit or bookkeeping income instead of SDE. If the owner's pay, personal expenses and one-time costs have not been added back, the base is wrong and the value will be too low or too high.
  • Applying an SDE multiple to EBITDA figures, or the reverse. The two metrics treat the owner's salary differently, so their multiples are not interchangeable.
  • Using a single month or a single great year as SDE. The input should be a representative annual figure, typically a multi-year average or the trailing twelve months.
  • Treating the result as the final price. Debt, inventory, equipment and cash handed over with the business can move the real price away from SDE × multiple.

Sources

About this calculator

Seller's Discretionary Earnings (SDE) is the standard profitability metric used to value small, owner-operated businesses — it's net income with the owner's salary, personal expenses run through the business, one-time costs, and non-cash items like depreciation added back in, showing the true cash benefit a new owner-operator would get. It's the small-business equivalent of EBITDA, used mainly for businesses valued under a few million dollars.

Business brokers and buyers price these companies as SDE × a multiple, where the multiple (commonly 2x-4x for most small businesses, higher for stable recurring-revenue models) reflects industry, growth, risk, and owner dependency. This calculator does that final multiplication, giving a quick ballpark valuation useful for business brokers, buyers, and owners sanity-checking an asking price before commissioning a formal valuation.

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Comments (1)

  • Editorial team

    The multiple is the lever that matters most, and it is the part nobody can calculate for you. On 180000 of SDE, a multiple of 2.5 gives 450,000.00 while 3.5 gives 630,000.00, so one turn of the multiple is worth a full year of earnings. Ask where a quoted multiple came from before leaning on it. What range of multiples have you seen quoted in your industry?

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