Seller's Discretionary Earnings (SDE)

The total annual financial benefit one owner-operator takes from a business: pre-tax profit plus owner pay plus add-backs. The profit measure behind most small-business sale prices.

SDE answers the buyer's real question about an owner-operated business: "if I run this myself, what does it put in my pocket in a year?" It starts from pre-tax profit and adds back one owner's salary and benefits, personal expenses run through the business, one-time costs, interest, depreciation, and amortisation.

Buyers of main-street businesses price on SDE times a multiple, so every provable unit of SDE is worth a multiple of itself at sale. That is why documentation matters as much as the earning: an add-back you cannot prove is a discount you hand the buyer.

For larger businesses under professional management the equivalent measure is EBITDA, which does not add back a manager's pay.