SDE in one paragraph
Seller's discretionary earnings, or SDE, is a business's pre-tax profit plus the owner's salary, owner perks, interest, depreciation and one-time or non-business expenses. Buyers of owner-run businesses use it because it shows what a single working owner could take home.
A worked example
| Line | Amount |
|---|---|
| Net profit before tax | $120,000 |
| Add: owner salary | $80,000 |
| Add: owner's vehicle and health insurance run through the business | $14,000 |
| Add: depreciation and interest | $16,000 |
| Add: one-time legal fee | $5,000 |
| SDE | $235,000 |
At an illustrative multiple of 2.6x, that business would point to roughly $611,000. The multiple is the part that moves, which is why the next section matters. This example is made up to show the math. It is not a valuation of any real business.
Where the multiple comes from
BizBuySell publishes average multiples by sector from reported sales. They run from about 1.95x for transportation and storage to 3.28x for online and technology, with most sectors between 2.1x and 3.1x (source). See the full table in our business value guide or try the estimator there.
What buyers push back on
- Add-backs without proof. Every add-back needs a receipt or a tax-return line behind it.
- Owner pay that is too low. If you pay yourself nothing, a buyer will subtract a market salary for a manager.
- Unreported cash. Revenue that never hit the books usually does not count.
- Trend. Falling earnings drag the multiple down, even if the year looks fine.
What this does not replace
A CPA should confirm your numbers, and a formal valuation or broker's opinion looks at much more than SDE. Use this page to understand the conversation you are about to have, then talk to us about your specifics.
Frequently asked
What is SDE?
Seller's discretionary earnings: a business's pre-tax profit with the owner's pay, owner perks, interest, depreciation and one-time costs added back. It shows what one working owner could earn from the business.
What multiple do small businesses sell for?
It depends on the sector. BizBuySell reports averages from about 1.95x SDE for transportation and storage to 3.28x for online and technology businesses, for sales reported Q3 2021 through Q2 2026. Individual deals run well above and below.