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Free SDE calculator.

Seller’s Discretionary Earnings is the right profitability metric for owner-operated businesses under roughly $5M in revenue. Compute your SDE and see what it implies for market value at typical SDE multiples.

What’s SDE, and when do I use it instead of EBITDA?

SDE (Seller’s Discretionary Earnings) is the total financial benefit a single full-time owner-operator extracts from a business each year. It adds the full owner’s compensation back to EBITDA, not just the above-market portion.

The logic: a new owner is assumed to either run the business themselves (capturing all the owner comp as their own earnings) or hire a replacement manager at market rate. Either way, it’s a buyer decision, not an operating cost of the business.

Use SDE instead of EBITDA when: your business is owner-operated, has one (or at most two) working owners, revenue is under roughly $5M, and the owner’s role is integral to operations. Above $5M, or when the business runs with a management team that doesn’t require the owner, EBITDA is the more appropriate metric.

Your financials

Reported figures

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Total revenue over the trailing 12 months.

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Earnings before interest and tax, from your P&L.

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Non-cash D&A from the P&L.

Owner compensation (add back in full)

Unlike EBITDA, SDE adds back the entire owner package – not just the above-market portion.

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Total salary or director’s draw paid to the primary working owner.

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Private health, pension, insurance, other personal benefits run through the business.

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Owner-used vehicle lease, fuel, phone, memberships. Full amount if business-funded.

Additional normalisations

Non-owner add-backs a buyer would accept.

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Gap between family-member pay and what a hire would cost.

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Rent paid to a related entity above the open-market rate.

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Legal or consulting costs that won’t recur.

Valuation reference (optional)

Applies a single SDE multiple. For businesses above $5M revenue, EBITDA is more appropriate.

Your SDE appears here

Enter your revenue, operating profit, and owner compensation to see the walk to SDE.

SDE valuations are heavily dependent on buyer type. A strategic buyer pays more; a financial buyer pays less. Owner-operated businesses often trade closer to the low end of the range when the owner is fully embedded in customer relationships or daily operations. A full Standard report applies size, quality, and owner-dependence adjustments explicitly.

Reference

SDE vs EBITDA: when to use each

Use SDE when…

  • Revenue under roughly $5M
  • One (or at most two) working owners
  • The owner’s role is integral to operations
  • Likely buyer is another individual operator
  • Business brokers and SMB M&A – SDE is the standard

Use EBITDA when…

  • Revenue above roughly $5M
  • Professional management team that could operate without the owner
  • Likely buyer is a strategic acquirer or private-equity firm
  • You plan to negotiate on financial-buyer terms
  • Mid-market M&A – EBITDA is the standard

Rule-of-thumb crossover

If you’re near the threshold, compute both. The valuation from EBITDA at 6-10x typically converges with SDE at 3-4.5x for the same business. When the numbers disagree materially, it’s usually a signal that the business isn’t fully transitioned away from owner dependence.

Other free tools

Related calculators

Quick valuation calculator

Get a rough 3-method valuation using the SDE you’ve just computed.

EBITDA calculator

For larger businesses – normalise your EBITDA with common add-backs.

Value Builder scorecard

Score your business across the 8 drivers that most determine market value.

SDE questions

Common SDE questions

Standard practice is to add back only one owner’s compensation – the primary owner’s. The assumption is that a single full-time buyer-operator replaces them. If the business genuinely needs two full-time owners, the second one’s compensation stays as an operating cost (the buyer will need to pay a replacement manager). Adding both back overstates earnings and invites buyer pushback.
Most small owner-operated businesses trade at 2–3.5x SDE. Higher-quality businesses (recurring revenue, low owner dependence, strong team, growing industry) push toward 4x+. Lower-quality situations (high owner dependence, concentrated customers, declining industry, or trade businesses with physical labour) settle closer to 1.5–2x. The Value Builder scorecard helps identify where your business sits on that spectrum.
Because SDE is a bigger number (it includes full owner compensation), the multiple is compressed. A business with $150k EBITDA and $100k owner salary has $250k SDE. At 8x EBITDA you’d get $1.2M; at 3x SDE you’d get $750k. The real answer usually sits between these, and varies heavily by buyer type. This is one reason getting the right metric matters – picking SDE vs EBITDA can change the headline valuation by 30–50%.
SDE originated in US small-business brokering and is the standard metric there. In the UK, Ireland, Australia, and continental Europe, “adjusted earnings” or “normalised EBITDA with owner add-back” usually mean the same thing. The concept is universal; the label varies. Our Standard report applies whichever is appropriate to your jurisdiction and business profile.

Turn your SDE into a full valuation.

The free calculator gives you SDE. A full report blends SDE, revenue multiple, and asset-based methods with working for every number and a defensible final range.

Standard – $199 Detailed – $399