What is SDE?
Seller’s Discretionary Earnings...AKA SDE
A seller’s discretionary earnings are the pretax and pre-interest profits before non-cash expenses, one owner’s benefits, one-time investments, and any non-related income or costs.
All of the cash at the “bottom line” of your financial statement is available to the business owner.
Why it Matters to You
This tool is used to help you, the business owner, make accurate comparisons between companies. SDE can sometimes be confused with EBITDA. The difference between the two is that when calculating EBITDA there is a wage taken out for the owner. SDE does not include a salary for the owner.
There is no hard rule when it comes to using SDE or EBITDA however, we start to look at EBITDA when the business has revenues over $1-2M.