SDE, or Seller’s Discretionary Earnings, is a financial metric commonly used in the valuation of small to medium-sized businesses. It represents the total financial benefit that a full-time owner-operator would derive from the business. SDE is calculated by taking the business’s net profit and adding back certain expenses that may not necessarily continue under new ownership. These add-backs typically include:
Importance of SDE When Selling a Business
In summary, SDE is a crucial metric for valuing a business and facilitating the sale process because it provides a standardized, clear representation of the business’s earning potential under new ownership. This helps sellers present their businesses more effectively and enables buyers to make more informed purchasing decisions.