Seller’s discretionary earnings (SDE) is the total cash benefit one full-time owner takes from a small business in a year. It starts with net profit, then adds back the owner’s own salary and benefits, non-cash costs, interest, and expenses that a new owner would not have. Most businesses that sell for under a few million dollars are priced as a multiple of SDE.
The SDE formula
SDE = net profit + owner salary and benefits + depreciation and amortization + interest + one-time expenses + personal expenses.
Each add-back answers one question: would this cost go away if you owned the business? The owner’s salary goes away because the profit now pays you. Depreciation is not a cash cost. Interest goes away because the seller’s debt is paid off at closing; your own loan payments are a separate test (see SBA loan to buy a business).
Worked example
| Net profit before tax | $120,000 |
| + Owner salary and health insurance | $70,000 |
| + Depreciation | $15,000 |
| + Interest | $8,000 |
| + Owner’s car and phone | $9,000 |
| SDE | $222,000 |
At the 2025 all-industry average of 2.61x, that SDE points to a price near $579,420. A seller who also adds back a “one-time” $20,000 repair that actually happens every year raises the asking price by about $52,200 at the same multiple.
Add-backs that buyers should challenge
- “One-time” costs that appear every year. Repairs, legal fees, and “consulting” that show up in each P&L are operating costs.
- Personal expenses without records. A vehicle or travel add-back needs a mileage log or receipts.
- More than one owner salary. SDE counts one working owner. If two partners work full time, one salary is a real cost for you.
- Family on payroll. If the seller’s spouse does real work, you will pay someone to do it.
- Below-market rent. If the seller owns the building and pays low rent, SDE overstates what you will earn under a market lease.
SDE vs. EBITDA
EBITDA keeps the cost of management in the numbers; SDE adds back one owner’s pay. Use SDE when one owner runs the business day to day, which is most small businesses. Use EBITDA when the business already has a paid manager and the owner is passive. A business with $222,000 SDE and an owner who must be replaced by a $70,000 manager has about $152,000 of EBITDA, and EBITDA multiples are applied to that smaller number.
SDE multiples by industry (2025)
The table shows the 25 industries with the most reported sales in 2025. Across 9,586 reported transactions, the average was 2.61x SDE and 0.69x revenue. The calculator above includes all 113 industries.
| Industry | Sales | SDE multiple | Revenue multiple |
|---|---|---|---|
| Restaurants | 1774 | 2.26x | 0.37x |
| Routes | 496 | 1.51x | 0.63x |
| Other Construction | 408 | 2.56x | 0.60x |
| Websites & Ecommerce | 339 | 3.33x | 1.04x |
| Other Service Businesses | 307 | 2.63x | 0.79x |
| Coffee Shops & Cafes | 253 | 2.28x | 0.45x |
| Auto Repair & Service | 247 | 2.70x | 0.59x |
| Bars, Pubs & Taverns | 217 | 2.86x | 0.53x |
| Landscaping & Yard Service | 211 | 2.56x | 0.76x |
| Accounting & Tax Practices | 194 | 2.33x | 1.11x |
| Liquor Stores | 189 | 3.41x | 0.52x |
| Other Retail | 185 | 2.80x | 0.60x |
| Hair Salons & Barber Shops | 181 | 2.18x | 0.59x |
| Laundromats | 169 | 4.12x | 1.45x |
| Cleaning Businesses | 154 | 2.30x | 0.78x |
| Dry Cleaners | 141 | 2.20x | 0.77x |
| Medical Practices | 139 | 2.58x | 0.70x |
| HVAC | 123 | 2.80x | 0.62x |
| Clothing & Accessories | 119 | 2.22x | 0.51x |
| Gas Stations | 113 | 3.70x | 0.63x |
| Convenience Stores | 100 | 2.82x | 0.41x |
| Ice Cream & Frozen Yogurt | 98 | 2.53x | 0.56x |
| Bakeries | 93 | 2.68x | 0.54x |
| Home Health Care | 92 | 2.84x | 0.60x |
| Grocery Stores & Supermarkets | 89 | 3.38x | 0.43x |
Source: Sundance Financial, “SDE Multiples by Industry”, from BizBuySell Insight Report data on closed sales reported by brokers in 2025. Overall figures: BizBuySell 2025 year in review.
Why the same SDE can be worth very different prices
An industry multiple is a starting point. Within one industry, buyers pay more for businesses with many customers, steady revenue, a long lease, and an owner who is not the whole business. They pay less when one customer is a large share of revenue, revenue is falling, equipment is near the end of its life, or the numbers do not tie to tax returns and bank deposits. Those checks need the documents, not a calculator.
FAQ
Is SDE the same as profit?
No. Profit is after the owner’s salary and add-backs; SDE adds them back. SDE is usually much higher than the net profit on the tax return.
Does SDE include the owner’s salary?
Yes. SDE adds back the salary and benefits of one working owner, because that money becomes yours when you own the business.
How many years of SDE should I use?
Look at three years. If SDE is rising, buyers often weight the latest year. If it is falling or uneven, use an average and ask why.