SDE (Seller's Discretionary Earnings)
Net profit plus owner salary and one-time expenses -- the true cash flow to the owner.
Seller's Discretionary Earnings (SDE) represent the total financial benefit to a single owner-operator. To calculate: start with net profit, then add back owner salary, one-time expenses, non-cash expenses (depreciation), and personal expenses run through the business. SDE is the most common valuation basis for small businesses (under $5M) because it shows what the new owner will actually earn. Typical SDE multiples range from 2-4x for small digital businesses.
Related Terms
Revenue Multiple
A multiplier applied to revenue to estimate business value (e.g., 3x annual revenue).
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization -- a measure of operating profitability.
SaaS Valuation
The process of determining the fair market value of a software-as-a-service business.