SDE
EBITDA plus one owner's compensation and discretionary benefits, used to price businesses a buyer intends to run personally.
Also called: Seller's discretionary earnings · Owner benefit
SDE answers a specific question: how much money does this business make available to one full-time owner-operator? It starts from EBITDA and adds back a single owner's salary, payroll taxes on that salary, and the personal expenses the business carries — the vehicle, the phone, travel that was really a holiday, a spouse on payroll who does not work there.
Because it assumes the buyer replaces the owner's labour with their own, SDE is the standard base for main-street and lower-middle-market transactions, typically where the figure lands under about two to three million dollars. Above that, the assumption breaks: nobody buys a fifteen-million-dollar-revenue company expecting to answer the phones, so the buyer prices on earnings after paying someone to do the job.
The critical rule is one owner, not all of them. If two siblings both work full time in the business, only one salary is added back — the buyer will still have to pay someone to do the second job. Adding both is a fast way to lose credibility in diligence.
From EBITDA to SDE
EBITDA: 480,000
Add back owner salary: 145,000
Add back payroll taxes on that salary: 12,000
Add back owner vehicle and phone: 18,000
Add back non-working spouse on payroll: 40,000
SDE: 695,000
Every line here needs a document behind it. An add-back you cannot evidence is an add-back a buyer removes.
Where sellers get caught
- Adding back two working owners' salaries when the buyer will have to replace both roles.
- Adding back an expense that is genuinely required to run the business — the delivery van is not discretionary.
- Comparing an SDE multiple to an EBITDA multiple. They are different bases and the multiples are not interchangeable.
Common questions
What SDE multiple should I expect?
It varies by industry, size, growth, customer mix, and how transferable the business is without you. Anyone who quotes a multiple before seeing your financials and your customer concentration is guessing. Serava does not promise a valuation or a price.
Do buyers accept every add-back I list?
No. Expect them to challenge anything that looks recurring, anything without a receipt, and anything that a new owner would still have to pay. Add-backs that survive diligence are the ones documented at the line-item level.
Related terms
EBITDA
Operating profit before financing, tax, and non-cash charges, used as the earnings base most buyers of lower-middle-market companies price against.
Add-backs
Expenses added back to reported earnings because they are personal, one-time, or would not exist under a new owner.
Adjusted EBITDA
EBITDA restated to remove one-off, non-market, and non-recurring items so the number reflects how the business will run under a new owner.
Recasting
Rebuilding reported financial statements to show what the business earns for a new owner, by removing owner-specific and one-off items.
Guides that use this term
Where sde comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.