SDE (Seller's Discretionary Earnings)

SDE starts from net profit and adds back everything the current owner personally benefits from: their own salary, depreciation and amortization, interest expense, and one-time or personal expenses run through the business. It represents the total economic benefit of owning the business.

SDE is used specifically for small, owner-operated businesses, where a buyer may personally step into the owner's role. Larger businesses with professional management in place are more commonly valued on EBITDA instead, which doesn't add back an owner's salary.