SDE Calculator
Calculate Seller's Discretionary Earnings step by step. Guided add-back categories with SBA lender insights for business buyers.
Step 1: Net Profit
Enter the business's net profit (bottom line) from the most recent tax return or P&L.
This is your starting point. Everything below gets added back to arrive at SDE.
Step 2: Add-Backs
Enter any expenses that should be added back. Leave fields at $0 if they don't apply.
Owner Compensation
Total compensation the owner takes from the business in any form.
W-2 wages, guaranteed payments, or owner draws shown on the P&L or tax return.
SBA lenders always accept this add-back.
Health, dental, and vision premiums paid by the business for the owner and family.
401(k) match, SEP-IRA, or pension contributions made for the owner.
Life insurance, disability, car allowance, or club memberships paid by the business for the owner.
Personal Expenses Run Through the Business
Costs that benefit the owner personally, not the business operations.
Gas, insurance, maintenance, or lease payments for a vehicle used primarily by the owner.
Trips, meals, or entertainment that are personal rather than business-generating.
Cell phone, home office, family payroll, or other personal costs run through the business.
SBA lenders scrutinize these — you'll need documentation.
Non-Recurring & One-Time Charges
Expenses that won't repeat under new ownership.
Lawsuit settlements, business restructuring, or other non-recurring professional fees.
Major equipment replacement, one-time renovations, or disaster recovery costs.
Any other expense that is clearly one-time and won't continue under new ownership.
Non-Cash Charges
Accounting entries that reduce reported profit but don't represent cash out the door.
Non-cash charge for wear and tear of tangible assets (vehicles, equipment, buildings).
Non-cash charge for intangible assets (patents, goodwill, franchise fees).
Interest & Taxes
Financing and tax obligations that change under new ownership.
Interest on business debt — the buyer will have their own capital structure.
Federal, state, and local income taxes — these depend on the buyer's entity and structure.
What Is SDE?
SDE (Seller's Discretionary Earnings) measures the total financial benefit a single owner-operator derives from a business. It starts with net profit and adds back the owner's salary, personal expenses, non-recurring charges, depreciation, amortization, interest, and taxes.
SDE is the standard earnings metric for valuing owner-operated small businesses (typically under $5M in revenue). SBA lenders, business brokers, and individual buyers all use SDE to determine what a business is worth and whether it can service acquisition debt.
SDE Formula
SDE = Net Profit + Owner Compensation + Personal Expenses + Non-Recurring Charges + D&A + Interest + Taxes
The key difference from EBITDA is that SDE adds back the owner's total compensation. This makes SDE the right metric when comparing owner-operated businesses, since each owner may pay themselves differently.
SDE vs. EBITDA: Which Should You Use?
| SDE | EBITDA | |
|---|---|---|
| Best for | Owner-operated businesses | Larger businesses ($5M+ rev) |
| Owner salary | Added back | NOT added back |
| Typical multiples | 2x-4x | 4x-8x |
| Used by | Individual buyers, SBA lenders | PE firms, strategic buyers |
Need to calculate EBITDA instead? Use the EBITDA Calculator.
What Do SBA Lenders Accept as Add-Backs?
SBA 7(a) lenders use SDE to calculate the Debt Service Coverage Ratio (DSCR), which must be at least 1.25x. Not all add-backs are treated equally:
- Always accepted: Owner salary/draws, depreciation, amortization, interest, and taxes.
- Usually accepted (with documentation): Owner health insurance, retirement contributions, clearly personal vehicle and travel expenses.
- Scrutinized closely: Non-recurring charges, personal expenses without clear documentation, and any add-back that appears inflated.
How Many Years of SDE Should You Calculate?
Brokers and lenders typically want to see 3 years of SDE (or at minimum, 2 years plus a trailing twelve months). Consistent or growing SDE across multiple years strengthens your position — whether you're buying or selling. A single year of unusually high SDE will be discounted by experienced buyers.
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