What is Seller's Discretionary Earnings (SDE)?

Seller's Discretionary Earnings (SDE) is the total financial benefit an owner receives from a business. It equals net profit plus the owner's salary, benefits, personal expenses run through the business, and non-cash items like depreciation. SDE is the primary metric used to value small businesses.

What SDE multiple can I expect when selling my business in St. Augustine?

Most St. Augustine small businesses sell at 2x to 3.5x SDE. A business generating $200,000 in SDE might sell for $400,000–$700,000. Businesses with strong recurring revenue, documented systems, and minimal owner dependence command the higher end of the range.

What Is Seller’s Discretionary Earnings and Why Does It Matter When Selling?

ryancwinterdev on May 13, 2026

What Is Seller’s Discretionary Earnings?

If you’re preparing to sell your business, you’ll hear the term Seller’s Discretionary Earnings — or SDE — more than almost any other phrase. It’s the single most important financial metric in small business valuation.

The SDE Formula

Seller’s Discretionary Earnings is calculated by starting with your net profit and adding back specific expenses:

SDE = Net Profit + Owner’s Salary + Owner’s Benefits + Depreciation & Amortization + One-Time Expenses + Personal Expenses Run Through the Business

The idea is to capture the true total financial benefit that the owner takes home from the business.

Why SDE Matters So Much

Buyers of small businesses are essentially buying a job and an investment at the same time. The price they’re willing to pay is based on how much cash the business puts in their pocket each year. SDE is the number that answers that question most accurately.

When a buyer’s lender — typically through an SBA loan — underwrites the deal, they use SDE to determine whether the business generates enough cash to service the debt and pay the new owner a salary.

What Gets Added Back?

Common add-backs include: your salary and family member compensation, health insurance and retirement contributions, personal vehicle expenses, cell phones and personal meals expensed through the business, one-time legal fees or equipment purchases, and depreciation and amortization.

Add-Backs Must Be Defensible

Not every add-back will be accepted without documentation. If you’ve been running significant personal expenses through the business, be prepared to show receipts and explain each one. The best practice is to work with a CPA or business broker 12–24 months before your sale to normalize your financials.

SDE in the St. Augustine Market

In St. Augustine, businesses are typically priced at 2x to 3.5x SDE. A business generating $200,000 in SDE might sell for $400,000 to $700,000. A business generating $500,000 in SDE with strong systems could sell for $1.25 million or more.

If you’d like help calculating your SDE and understanding what your business could sell for, let’s connect.

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