SDE (Seller's Discretionary Earnings)
SMB M&A term · what is sde
DefinitionSeller's Discretionary Earnings (SDE) is the total financial benefit one owner-operator draws from a business in a year. It begins with net profit and adds back the owner's compensation, discretionary and personal expenses, non-cash items such as depreciation, and one-time costs, so a buyer can see what the business would earn under their ownership. SDE is the number most small-business valuations are built on, which is exactly why it has to be verified — an inflated add-back inflates the asking price.
Formula
SDE = Net profit + Owner compensation + Interest + Taxes + Depreciation & amortization + Discretionary and one-time expenses