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Seller's Discretionary Earnings Calculator

Find your business's SDE and a quick estimate of what it could sell for.

How it is calculated

The tool adds four items together and multiplies by a multiple you choose: SDE = net_income + owner_salary + interest_expense + depreciation_amortization, estimated_value = SDE × valuation_multiple and monthly_SDE = SDE ÷ 12. All money fields are for the same 12-month period. Net income may be negative (a loss), but salary, interest, depreciation and the multiple cannot be, and every field is required, so enter 0 for an item you do not have. The multiple is a plain factor (2.5 means 2.5 times SDE), not a percentage, and you must supply it, because it depends on industry, growth and risk. Taxes, one-time costs and personal expenses run through the business are not separate fields; include them in net income beforehand if you want them added back.

Worked example

A shop reports net income of $60,000. The owner pays herself $70,000, and the business has $5,000 of interest and $15,000 of depreciation and amortization. SDE: 60,000 + 70,000 + 5,000 + 15,000 = $150,000.00. Monthly SDE: 150,000 ÷ 12 = $12,500.00. With a multiple of 2.5, estimated value is 150,000 × 2.5 = $375,000.00.

A buyer who runs the business full time could expect about $150,000 of owner cash flow before paying any acquisition debt.

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Common mistakes

  • Leaving out the owner's salary. The add-back is the point of SDE: it shows what one working owner takes from the business, so enter the salary the owner is paid, not zero.
  • Adding back the salary of employees or of several owners. The field is for the single owner-operator the buyer would replace.
  • Mixing periods, such as monthly net income with annual depreciation. Use full-year figures for every field.
  • Typing the multiple as a percentage (250) instead of a factor (2.5). The estimated value would be a hundred times too high.
  • Treating the estimated value as a price. It is only SDE times the multiple you chose, and it ignores assets, debt, inventory and market conditions. A negative net income can push SDE and the estimate below zero.

About this calculator

Seller's Discretionary Earnings (SDE) is the standard measure of true owner cash flow used to value small, owner-operated businesses, calculated by starting with net income and adding back the owner's salary, interest expense, depreciation and amortization (similar to EBITDA), and any other one-time or personal discretionary expenses run through the business. This normalizes earnings to reflect what a new owner-operator would actually take home, since a small business's reported net income is often distorted by the current owner's compensation choices.

Business brokers and buyers use SDE — rather than EBITDA, which is more appropriate for larger companies with professional management — as the standard earnings base for valuing businesses typically under a few million dollars in revenue, then apply a valuation multiple (commonly ranging from roughly 2x to 4x SDE depending on industry, growth, and risk) to arrive at an estimated sale price. Sellers preparing to list a business, and buyers evaluating a listing, both rely on this figure as the starting point of nearly every small-business valuation conversation.

Net income, owner salary, interest, and depreciation & amortization go in; SDE comes out, and your chosen valuation multiple is applied to it to estimate a sale price, so you can quickly gauge what a business might be worth.

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