Financial Analysis
Seller's Discretionary Earnings (SDE)
The total annual financial benefit available to a single owner-operator of a small business, derived by adding owner compensation and non-cash or non-recurring items back to net income.
The total annual economic benefit available to a single full-time owner-operator of a small business. Calculated by adding back to net income the owner's total compensation (salary, benefits, and perquisites), non-cash charges such as depreciation and amortization, non-recurring expenses, and other discretionary items that will not transfer to a buyer. SDE is the standard earnings basis for valuing small businesses, typically those under $5 million in annual revenue, and serves as the figure to which a valuation multiple is applied. (Also see Add-back, EBITDA, Valuation Multiple.)