SDE: The Number That Actually Matters When You're the One Running the Show

Let's talk about SDE—Seller's Discretionary Earnings. If EBITDA is the metric Wall Street loves, SDE is the one that makes sense for the rest of us. The owners who answer their own phones. Who close up shop at the end of the day. Who are the business in ways that don't show up on an org chart.

Here's the question SDE answers: If someone bought your company tomorrow and stepped into your boots, how much cash could they realistically pull out?

That's it. That's the whole game.

Why SDE Hits Different for Small Business Owners

I've sat with dozens of owners who looked at their profit and loss statement and thought, "This doesn't capture what I actually take home." They're right. It doesn't.

SDE fixes that.

You start with EBITDA, then you add back everything that's really just you benefiting from the business. Your salary? Added back. That F-150 on the company books that you drive to your kid's baseball games? Added back. Health insurance for your family? Yep—added back.

Why? Because a new owner gets to make their own choices. Maybe they'll pay themselves more. Maybe less. Maybe they'll ditch the truck and drive their own car. The point is, those are discretionary decisions—and a buyer wants to know the full pool of cash available before they start making them.

Think of SDE like this: it's the total economic benefit of owning your business, stripped of the personal choices you've made about how to extract it.

The Math (It's Simpler Than You Think)

Here's how you actually calculate it:

SDE = EBITDA + Owner's Compensation + Personal Expenses Running Through the Business

Let me make it concrete.

Say your EBITDA lands at $130,000. Not bad. But you also pay yourself a $70,000 salary—that's not showing up in EBITDA because it hit your books as an expense. And there's another $12,000 in personal stuff woven through the business: maybe it's a cell phone, a car lease, some meals that were more "family dinner" than "client entertainment."

Add it up: $130,000 + $70,000 + $12,000 = $212,000 SDE.

That $212,000? That's what a buyer is really looking at. That's the cash they could work with if they took over tomorrow.

Here's Where It Gets Tricky

Every owner runs their business differently. Some pay themselves generously. Others take a minimal salary and let profits stack up. Some expense everything they can; others keep it clean.

None of that is wrong. But it means your SDE tells a very different story than the guy down the street, even if your businesses look similar on paper.

And here's the part that trips people up during a sale: if you haven't thought carefully about what's personal versus what's truly business, due diligence gets messy fast. Buyers start questioning everything. Deals slow down. Sometimes they fall apart.

Your Exit Value walks you through each adjustment line by line. You'll see exactly how your compensation and those discretionary expenses shape your number—no surprises when a buyer's accountant starts poking around.

What's Your Multiple?

Here's the thing about SDE multiples: they're all over the map. I've seen businesses sell for 1.5x SDE. I've seen similar-looking businesses sell for 4x. Industry matters. Growth matters. How dependent the business is on you—that matters a lot.

Generic rules of thumb won't cut it.

Your Exit Value pulls real transaction data for your specific industry, so you're not guessing based on some outdated formula from a business book published in 2019. You'll see what businesses like yours are actually trading for—right now.