Seller's Discretionary Earnings (SDE) Calculator
Build your Seller's Discretionary Earnings from the P&L with the full add-back list — the number Main Street buyers actually price on, and the biggest dispute area in a sale.
Written by Dorothy Ibrahim, 10+ years in banking & finance
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How we calculate this
This calculator builds Seller's Discretionary Earnings from your P&L using the standard add-back list — owner salary and benefits, interest, taxes, depreciation, one-time expenses, and personal costs run through the business. SDE is the earnings number Main Street businesses (under roughly $1–2M in earnings) actually sell on, and the add-backs are the biggest dispute area in due diligence. It also shows the value range those earnings imply at typical Main Street multiples.
The formulas
- Total add-backs
- owner's salary + owner payroll taxes & benefits + interest + taxes + depreciation & amortization + one-time expenses + discretionary/personal expenses − non-business revenue to remove
- Seller's Discretionary Earnings (SDE)
- net profit + total add-backsA negative net profit can still produce a positive SDE once the owner’s compensation and non-cash items are added back.
- Implied value range
- SDE × 1.5 to 3.5× (Main Street multiple range)
- SDE margin
- SDE ÷ annual revenue
- Add-back scrutiny check
- (discretionary + one-time expenses) ÷ SDE — flagged when over 25%The 25% threshold is a rule of thumb for when buyers start pushing back hard.
Worked example
- Say net profit is $90,000, owner salary is $65,000, owner payroll taxes and benefits are $10,000, interest is $8,000, taxes are $5,000, depreciation and amortization are $12,000, one-time expenses are $4,000, discretionary/personal expenses are $6,000, and there is no non-business revenue to remove.
- Total add-backs = $65,000 + $10,000 + $8,000 + $5,000 + $12,000 + $4,000 + $6,000 = $110,000.
- SDE = $90,000 + $110,000 = $200,000.
- On $800,000 of annual revenue, the SDE margin is $200,000 ÷ $800,000 = 25%.
- At Main Street multiples of 1.5–3.5×, the implied value range is $300,000–$700,000.
- Discretionary plus one-time add-backs are $10,000 — only 5% of SDE, comfortably under the 25% level where buyers start challenging the add-back list.
Rates, benchmarks & sources
- Main Street SDE multiple range of 1.5–3.5×. Wide by design — add-backs and comparability drive where a specific business lands. — BizBuySell / DealStats / First Page Sage / Peak transaction aggregators (rule-of-thumb range)
- SDE definition: net profit plus owner's full compensation, interest, taxes, D&A, one-time and discretionary expenses, minus revenue a buyer will not inherit. — Standard broker/IBBA add-back convention
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- This is an estimate built from your own P&L entries — the tool cannot verify that each add-back is defensible, and buyers strip add-backs that are really ongoing costs in due diligence.
- The 1.5–3.5× multiple range is a broker-survey heuristic, not an appraisal; a real sale requires a professional valuation and market testing.
- Assumes a single owner. Multi-owner businesses normally add back only one owner’s compensation and treat the rest as market-rate staffing costs.
- Does not model working capital, inventory, or real estate, which are often negotiated separately from the SDE-multiple price.
Frequently asked questions
What is the difference between SDE and EBITDA?
SDE adds back the owner's FULL salary and benefits, because the assumed buyer is an owner-operator who replaces you. EBITDA adds back only compensation above what a market-rate manager would cost, because the assumed buyer keeps a manager in place. Businesses under roughly $1–2M in earnings trade on SDE; larger ones on EBITDA. Mixing them — applying an EBITDA multiple to an SDE number — overstates value.
What counts as a legitimate add-back?
An add-back is an expense a new owner genuinely will not inherit: your salary and payroll taxes, interest on debt that gets paid off, depreciation (a non-cash entry), a one-time legal settlement, or your personal car run through the business. The test buyers apply is simple: if the cost continues under new ownership, it is not an add-back. Document every one — receipts, invoices, and a one-line explanation.
Why does the tool warn me when add-backs are over 25% of SDE?
When discretionary and one-time add-backs make up more than about a quarter of your SDE, buyers get skeptical — heavy add-backs are the classic way sellers inflate earnings, and every challenged add-back cuts the price by its amount times the multiple. The 25% level is a rule of thumb for when the pushback starts, not a legal line. Expect to defend each item with documentation.
How much is each dollar of add-backs worth at sale?
Every dollar of defensible add-backs raises SDE by a dollar, and the price moves by that dollar times the multiple — at the 2.5× midpoint of the 1.5–3.5× Main Street range, a documented $10,000 add-back is worth roughly $25,000 of price. That is exactly why buyers challenge aggressive add-backs so hard, and why documentation is worth the effort.
Is this SDE number something a buyer or lender will accept?
Treat it as a starting point. Buyers, brokers, and SBA lenders will recast your financials themselves from tax returns and bank statements, and their SDE may differ from yours wherever add-backs are undocumented or arguable. The multiple range here is a heuristic from transaction aggregators — a real sale requires a professional valuation or broker opinion of value.
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themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions.