What is Seller’s Discretionary Earnings (SDE) and why does it matter?

Seller’s Discretionary Earnings (SDE) is a cash‑flow‑based measure of business earnings in an owner‑operated business. It comprises profit before tax and interest plus owner benefits, non‑cash expenses, one‑time investments and other non‑business incomes or expenseshttps://corporatefinanceinstitute.com/resources/accounting/sellers-discretionary-earnings/#:~:text=What%20is%20Seller%E2%80%99s%20Discretionary%20Earnings%3F. SDE gives buyers a clear picture of the cash flow they can expect and helps sellers maximize value by normalizing earningshttps://corporatefinanceinstitute.com/resources/accounting/sellers-discretionary-earnings/#:~:text=From%20the%20seller%E2%80%99s%20side%2C%20calculating,expenses%20and%20incomes%20to%20include. Adjustments typically include adding back one‑time expenses, owner perks and non‑business items while ensuring replacement salaries for additional ownershttps://corporatefinanceinstitute.com/resources/accounting/sellers-discretionary-earnings/#:~:text=When%20preparing%20a%20business%20for,calculating%20the%20seller%E2%80%99s%20discretionary%20earnings. Because many small businesses are valued as a multiple of SDE, understanding and documenting it accurately is critical. Our experts provide personalised valuation guidance and are available to discuss the value of your business. Reach out for friendly support and clear explanations.