SDE (seller's discretionary earnings) is the total annual financial benefit one full-time working owner takes from a business: pre-tax profit, plus the owner's salary and benefits, plus interest, depreciation/amortisation, and genuinely one-off or discretionary expenses. It exists because in an owner-operated business, "profit" on the tax return wildly understates what the business actually pays its owner — and it's the basis nearly every Main Street sale is priced on. BizBuySell's Q1 2026 data — median sale $350,000 at an average 2.7× cash flow — is SDE-basis.
The formula
SDE = Pre-tax profit + one owner's salary & benefits + interest + depreciation & amortisation + true one-offs + discretionary expenses
Worked example — an e-commerce business:
| Line | Amount |
|---|---|
| Pre-tax profit | $95,000 |
| + Owner's salary | $70,000 |
| + Owner's health insurance & vehicle | $14,000 |
| + Interest | $6,000 |
| + Depreciation | $9,000 |
| + One-off website rebuild | $18,000 |
| SDE | $212,000 |
At the e-commerce band, that SDE — not the $95K profit — is what the multiple applies to.
The add-backs buyers push back on
SDE negotiations are really add-back negotiations. Routinely contested:
- "One-offs" that recur. A rebrand every three years is a cost, not an add-back.
- Family on the payroll. Add back a non-working relative's salary, yes; a spouse who works the counter must be replaced at market cost.
- Two working owners. SDE adds back one owner. A couple both working full-time means one market salary stays in costs — this single error inflates many asking prices by 20%+.
- Personal expenses without paper. If the seller can't evidence it, a buyer's lender won't credit it.
SDE vs EBITDA in one line
EBITDA leaves a manager's salary in costs; SDE adds the owner's out. Small owner-run deals price on SDE, management-run companies on EBITDA — and quoting a multiple against the wrong basis moves "fair value" by 30%+. Full treatment: SDE vs EBITDA; a live example of the trap: our review of a 96%-margin Flippa SaaS.
Enter SDE directly in the free calculator — it applies your market's SDE-basis band and shows the fair-value range. How the engine normalises earnings first: methodology.