Seller’s discretionary earnings (SDE)

An adjusted earnings measure commonly used for owner-operated businesses, stated for one working owner. Starting from net income, it ordinarily adds back interest, income taxes where deducted, depreciation, amortization, one owner’s compensation and benefits, and supported nonrecurring or discretionary expenses.

Also called SDE, Seller’s discretionary earnings

Seller’s discretionary earnings (SDE) in practice

Hypothetical: an owner-operated business presents an seller’s discretionary earnings (SDE) reconciliation from net income. Each adjustment must have support and must be counted only once. The buyer checks which expenses will recur, what work the owner performs, and whether replacement management will be needed. There is no universal US$1 million profit cutoff for using SDE.

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