What is SDE (seller's discretionary earnings)?
The total financial benefit one owner-operator takes from a business in a year — operating profit plus owner compensation, benefits and one-off costs added back.
Seller's discretionary earnings: the total financial benefit one owner-operator takes from the business in a year. Operating profit, with the owner's compensation, benefits and genuine one-off costs added back in.
What goes into it
- Operating profit
- €142,000
- + Owner compensation
- €98,000
- = SDE (after other add-backs)
- €268,000
- + vehicle €12k, + one-offs €16k
Why it exists
For a business where one person is both owner and operator, EBITDA answers the wrong question. It tells you what the business earns after paying someone to do the owner's job — but a buyer who intends to do that job themselves is not going to pay that salary to anyone. SDE describes what the buyer actually gets.
The rule most owners get wrong
SDE adds back one owner's compensation. If two founders both work full time, the second is a genuine operating cost, because the buyer will have to replace that person. Adding both back inflates SDE by an entire salary and is the first thing a buyer's advisor recalculates.
When it stops applying
Once a management layer runs the day-to-day, or above roughly €1M of turnover, the relevant figure becomes EBITDA and the multiple changes with it — from 2–3.5× to 4–6×. SDE vs EBITDA covers the switch; how to value a business covers what happens next.