In simpler terms, SDE tells you how much money the owner actually makes, after adjusting for personal, one-time, or non-essential business expenses.
These add-backs are adjustments that remove distortions caused by personal spending or rare expenses, helping buyers see what the business really earns.
Here’s what’s typically added back when calculating SDE:
If the business pays the owner a salary, that amount is added back, since a new owner might pay themselves differently or hire someone at a different rate.
Many small business owners run certain personal costs through the business (like vehicle use, travel, or phones). These are added back because they’re not essential to operations.
Expenses that happen only once, such as moving costs, legal settlements, or special consulting fees, are added back since they won’t affect future earnings.
These are accounting or financing costs, not operational ones. Interest depends on how a buyer finances the business, and depreciation is non-cash, so both are added back.
If relatives are paid through the business but don’t actually work in it, those wages are added back to show the company’s genuine performance.
SDE is most relevant for small to medium-sized businesses, especially those run by a single owner.
In such businesses, it’s common for personal and operational expenses to blend together — making the net profit alone a poor reflection of true value.
For buyers: It gives a realistic picture of what they could earn as the new owner.
For sellers: It helps justify the asking price with transparent and standardized figures.
For brokers: It allows easier comparison between businesses using an industry multiple (often 2–3x SDE) to estimate fair market value.
At Spondoo Accountants, we help business owners produce accurate, defensible SDE calculations that truly reflect their company’s performance.
Whether you’re preparing to sell your business, looking to attract investors, or simply wanting to understand your company’s value, our team ensures your financials are clear, credible, and ready for valuation.
We identify legitimate add-backs, remove personal noise, and create reports that stand up to scrutiny.
SDE (Seller’s Discretionary Earnings) shows the total income a single owner can take home from a business after adding back personal, non-recurring, or discretionary expenses.
Net profit is what’s left after all expenses, but it includes the owner’s salary and personal costs.
SDE adjusts for these, showing what the business really earns for one full-time owner-operator.
Add-backs are adjustments that remove one-time or personal expenses.
They’re crucial because they reveal the company’s true earning power and ensure the valuation is fair and comparable across businesses.
Buyers often apply an industry multiple to SDE (usually 2–3x) to estimate the business’s market value.
For instance, if a business has £200,000 in SDE and the industry multiple is 2.5, it might be worth around £500,000.
Both measure profitability, but EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) excludes the owner’s salary and benefits.
EBITDA is used for larger, investor-led businesses, while SDE suits owner-operated small businesses.
In short:
SDE = Total earnings for one owner
EBITDA = Profit from business operations, regardless of ownership
Yes, but it’s best to work with a qualified accountant to ensure your add-backs are reasonable and defensible, especially if you plan to sell or attract investors.
Seller’s Discretionary Earnings (SDE) is one of the most powerful metrics in small business valuation.
It gives an honest view of a company’s true profitability, beyond the tax figures and accounting adjustments.
If you’re thinking about selling, buying, or simply understanding your business’s worth, getting your SDE right is crucial.
And with experienced advisors like Spondoo Accountants by your side, you can ensure your numbers speak the truth.
