Seller Discretionary Earnings Calculator
Small business valuation base.
Calculate Seller Discretionary Earnings from net income with add-backs for owner compensation, interest, depreciation, and one-off costs.
What this tool does
Seller Discretionary Earnings (SDE) reconstructs owner-perspective profit by adding owner compensation and one-off costs back to net income. This calculator takes net income, owner salary, owner benefits, interest expense, depreciation and amortisation, and one-off items to calculate SDE. The result represents the cash profit available to an owner-operator after adjusting for expenses and charges that may not reflect the earning power of the business under new ownership. Owner salary and one-off items typically have the largest influence on the final figure. A common scenario involves valuing a small business for sale, where SDE provides a foundation separate from accounting net income. The calculator assumes standard business structures and does not account for taxes, working capital changes, or capital expenditure requirements. The output is for informational purposes and does not reflect actual buyer valuations, which involve multiple methods and market factors.
Quick answer: with the default values, the result is $385,000.00 (Seller Discretionary Earnings). Adjust the values below for your own figures.
Enter Values
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Formula Used
Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Seller Discretionary Earnings (SDE) adds back owner compensation, interest, depreciation, amortization, and one-off costs to net income. It's the standard valuation metric for owner-operated small businesses below 5M revenue. Unlike EBITDA (which assumes professional management), SDE reflects what a working owner would actually take home.
200k net income + 100k owner salary + 20k benefits + 10k interest + 40k D&A + 15k one-offs = 385k SDE. At typical small-business multiples of 2.5-3.5x, the business would value 963k-1.35M. Buyers apply SDE multiples; sellers should prepare SDE workings with documentation when going to market.
SDE vs EBITDA matters for deal sizing. For businesses under 1M earnings, SDE is standard because buyer takes over owner role. For businesses over 2M, EBITDA becomes standard because the buyer hires professional management rather than working owner-operator. Mid-sized businesses sometimes report both with different multiples applied.
A worked example
With the defaults: net income of 200,000, owner salary of 100,000, owner benefits of 20,000, interest expense of 10,000. The tool returns 385,000.00.
What moves the number most
The result responds to Net Income, Owner Salary, Owner Benefits, Interest Expense, and Depreciation + Amortization.
The formula behind this
SDE = net income + owner salary + owner benefits + interest + D&A + one-off items.
£200,000 + £100,000 + £20,000 + £10,000 + £40,000 + £15,000 = $385,000.00.
Inputs
| Net Income | $200,000.00 |
|---|---|
| Owner Comp Add-Back | $120,000.00 |
| Interest + D&A | $50,000.00 |
| Valuation (3x SDE) | $1,155,000.00 |
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
The calculator computes Seller Discretionary Earnings (SDE) by taking net income and adding back a series of adjustments that reflect the owner's true earning capacity. These addbacks include the owner's salary and benefits, which may not recur under new ownership; interest expense, since a buyer may refinance debt differently; depreciation and amortization, which are non-cash charges; and one-off items, which are assumed to be non-recurring. The model treats all inputs as applying to the same reporting period and assumes these figures are accurately classified. It does not account for working capital changes, tax effects, transaction costs, or variations in actual cash flow, nor does it adjust for industry-specific multiples or buyer-specific synergies that might affect valuation.
References
Frequently Asked Questions
SDE vs EBITDA?
What multiples apply to SDE?
When does it become EBITDA?
What should I add back?
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