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SDE Calculator (Seller's Discretionary Earnings)

Recast a small business's profit into seller's discretionary earnings. Start from pre-tax net profit, add back one owner's pay and perks, depreciation, amortization, interest and one-time costs, then see what the business could sell for at a low, mid and high SDE multiple.

Last updated:

Profit and loss (last 12 months or last tax year)
$

Used for SDE margin and revenue multiple

$

Negative for a loss

Add-backs
$

W-2 pay, guaranteed payments or draws for one working owner

$

Employer FICA, owner's health insurance, retirement match

$

Personal car, phone, travel, meals paid by the business

$
$
$

Interest on business loans and lines of credit

$

Lawsuit, move, one-off repair, unusual consulting

$

Negative if the owner charges the business below-market rent

$

Interest income, gain on selling equipment, one-off grants

Valuation
×
×
$

Converts SDE to adjusted EBITDA

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Enter your values to see the result.
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How to use the SDE Calculator (Seller's Discretionary Earnings)

  1. Enter net profit before income tax from the last 12 months or the latest tax return, plus revenue if you know it.
  2. Add back one owner's compensation: salary or draws, payroll taxes and benefits, and personal costs paid by the business.
  3. Add non-cash and non-recurring items: depreciation, amortization, interest and one-time expenses; remove non-operating income.
  4. Enter a low and high SDE multiple from comparable sales or a broker (small firms often trade at roughly 1.5× to 3.5×).
  5. Press Calculate SDE & value to see SDE, the value range, adjusted EBITDA and the valuation grid.

SDE formula

SDE = pre-tax net profit + owner salary + owner payroll taxes & benefits + owner discretionary expenses + depreciation + amortization + interest + one-time expenses ± rent adjustment − non-operating income

Business value = SDE × SDE multiple, and adjusted EBITDA ≈ SDE − market salary for a manager.

Example: a business reports $120,000 of pre-tax profit. Adding back the owner's $85,000 salary, $12,000 of owner benefits, $8,000 of personal expenses, $15,000 depreciation, $6,000 interest and a $5,000 one-off expense, then removing $2,000 of interest income, gives $249,000 of SDE. At 2× to 3× SDE the business is worth about $498,000 to $747,000, with a mid-point of $622,500.

Common add-backs and how they are treated

ItemAdd back?Why
One working owner's salary, draws, payroll taxes, health insuranceYesSDE measures the total benefit to one owner-operator
Owner's personal car, phone, travel, mealsYes, if documentedA new owner would not have to pay these
Depreciation and amortizationYesNon-cash accounting charges
Interest on business debtYesDebt is normally paid off at closing; financing is the buyer's choice
One-time legal case, relocation, disaster repairYesWill not recur
Rent paid to the owner below marketNegative adjustmentA buyer will pay market rent
Second working owner's payUsually noThe job still has to be done by someone
Regular marketing, maintenance, staff wagesNoOrdinary costs of running the business
Interest income, gains on asset salesRemoveNot part of normal operations

Tips for a credible SDE number

  • Recast at least the last three years and the trailing twelve months. Buyers look for steady or rising SDE, and often weight recent years more.
  • Tie every add-back to the tax return, general ledger or receipts. Unsupported add-backs are usually discounted or ignored.
  • Do not add back capital spending the business genuinely needs; a buyer will reduce the multiple if equipment is worn out.
  • The multiple, not just SDE, moves value: recurring revenue, a trained team, low customer concentration and transferable systems all push it up.

Frequently asked questions

What is seller's discretionary earnings (SDE)?

SDE is the total cash benefit one full-time owner-operator gets from a business in a year. It equals pre-tax net profit plus that owner's salary and benefits, discretionary personal expenses, depreciation, amortization, interest and genuinely one-time costs. It is the standard earnings figure for valuing owner-run businesses, usually those with under about $5 million in revenue.

How do you calculate SDE?

SDE = net profit before tax + owner compensation (one owner) + owner benefits and perks + depreciation + amortization + interest expense + non-recurring expenses − non-operating income. For example, $120,000 profit + $85,000 owner salary + $12,000 benefits + $15,000 depreciation + $6,000 interest = $238,000 of SDE.

What is the difference between SDE and EBITDA?

Both add back interest, taxes, depreciation and amortization, but SDE also adds back the owner's entire salary and perks. EBITDA instead treats a market-rate manager salary as a normal expense. So EBITDA ≈ SDE − market manager salary. SDE suits owner-operated small businesses; EBITDA suits larger firms with a management team in place.

What SDE multiple should I use?

Multiples depend on industry, size, growth, how dependent the business is on the owner and how clean the books are. Many small Main Street businesses sell for roughly 1.5× to 3.5× SDE, with larger, stable or recurring-revenue firms at the top. Use recent comparable sales or a business broker's opinion for your industry rather than a single rule of thumb.

Which add-backs do buyers accept?

Buyers accept add-backs that are documented and will not continue under new ownership: one owner's pay, the owner's personal car or phone, family members paid above market for little work, one-off legal or moving costs, depreciation and interest. Ordinary recurring costs like marketing, needed repairs or staff wages are not add-backs, and inflated add-backs are the most common reason deals get repriced.

Can a business with two owners add back both salaries?

Usually only one owner's compensation is added back, because SDE measures the benefit to a single owner-operator. If a second owner works in the business, a buyer would have to pay someone to do that job, so that salary (or a market wage for the role) stays as an expense.

Does the SDE valuation include inventory and real estate?

Small businesses are usually sold as asset sales on a cash-free, debt-free basis. The SDE multiple typically covers equipment, goodwill and a normal level of inventory; real estate is valued separately, and any business debt is paid off by the seller from the sale proceeds.

Are all the tools on FreeToolCabin tested for quality and accuracy?

Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.

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