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If you're thinking about selling your business, SDE is the number you need to understand first. Seller's Discretionary Earnings represents the total financial benefit a single owner-operator receives from the business — and it's the foundation most buyers use to determine what your company is worth.

How SDE Is Calculated

Start with your net profit before taxes from your P&L statement. Then add back the owner's W-2 salary and any personal benefits or expenses the business pays for — things like health insurance, 401(k) contributions, personal vehicle expenses, and cell phone bills.

The formula is straightforward: SDE = Net Profit (Before Tax) + Owner's Salary + Owner Benefits & Personal Expenses.

Why Buyers Care About SDE

When a buyer acquires a small business, they're typically replacing the owner. SDE tells them what they can expect to earn from the business — including the salary they'd pay themselves. It normalizes the financials across different businesses where owners compensate themselves differently.

SDE vs. Take-Home Pay

SDE is almost always higher than what you actually take home, because it includes benefits and expenses you might not think of as "income." That's by design — it captures the full economic value of ownership.

Two businesses with the same revenue and profit can sell for very different prices. The difference comes down to how the business is structured — and how much risk a buyer takes on by acquiring it.

1. Key Management in Place

If the business can't run without you, a buyer is purchasing a job — not a company. Having managers or key employees who handle day-to-day operations makes your business dramatically more attractive and commands a higher multiple.

2. Diversified Customer Base

When a single customer accounts for more than 20% of your revenue, it's a red flag for buyers. Losing that one relationship could tank the business. A broad, diversified customer base reduces concentration risk and increases value.

3. Clean Financials

Professionally maintained books with clear, accurate records speed up due diligence and build buyer confidence. Messy financials create doubt — and doubt lowers offers. If your books aren't clean, start fixing them now, even if you're not planning to sell for a few years.

4. Stable or Growing Revenue

Flat or increasing revenue over the past two to three years shows a healthy business with staying power. Declining revenue raises questions about market position, competition, and future viability — all of which push the multiple down.

Timing a business sale is part strategy, part personal readiness. Selling at the right moment can mean the difference between a good exit and a great one.

Financial Signals

The best time to sell is when your numbers are strong. Buyers pay premiums for businesses with two to three years of consistent or growing revenue and healthy margins. If your financials are trending up, you're in a position of strength.

Market Conditions

Buyer demand, interest rates, and industry trends all affect what your business will sell for. When capital is cheap and buyer appetite is high, multiples tend to rise. Selling into a strong market amplifies your value.

Personal Readiness

Beyond the numbers, the right time is when you're personally ready to move on. Burnout, health concerns, a new opportunity, or simply wanting to enjoy the next chapter — all valid reasons. The key is starting to plan before the urgency hits. Most advisors recommend beginning the process at least one to two years before you want to close.

The Worst Time to Sell

When you have to. Pressure to sell — from financial stress, health issues, or a forced timeline — reduces your negotiating power and can push you into accepting a deal that doesn't reflect your business's true value. Planning ahead is the best thing you can do for your exit.

You'll see both SDE and EBITDA multiples referenced in business valuations. Understanding the difference helps you interpret your valuation and speak the same language as buyers and advisors.

SDE (Seller's Discretionary Earnings)

SDE includes the owner's salary and benefits on top of net profit. It's the standard for small businesses where the owner is actively involved in operations. Most businesses under $5M in revenue are valued using SDE multiples.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA strips out the owner's compensation and focuses on the business's operating profitability. It's typically used for larger businesses where the owner's role could be filled by a hired manager. EBITDA multiples tend to be higher than SDE multiples because they're applied to a smaller earnings base.

Which One Should You Use?

For most small business owners, SDE is the more relevant metric. If your business generates over $1M in earnings and has professional management in place, EBITDA may be more appropriate. Our calculator uses both methodologies to give you a range that reflects how different buyers might value your business.

A Broker's Opinion of Value (BOV) is a professional assessment of what your business is likely to sell for on the open market. It goes well beyond what a calculator can tell you.

What's Included

A BOV typically includes a deep dive into your financials, a review of comparable sales in your industry, an assessment of your business's strengths and risks, and a recommended listing price range. It also considers intangible factors like brand reputation, customer relationships, and competitive positioning.

How It Differs from a Free Estimate

Online calculators like ours give you a directional estimate based on industry averages. A BOV is customized to your specific business — taking into account the details that move the needle in either direction. Think of the calculator as a compass and the BOV as a detailed map.

When You Need One

If you're seriously considering selling within the next one to three years, a professional BOV is the logical next step after using a calculator. It gives you an accurate, defensible number to plan around — and it signals to potential buyers that you've done your homework.

The businesses that sell fastest — and for the best price — are the ones that are prepared. Here's what to have in order before you go to market.

Get Your Financials Clean

Three years of professionally prepared financial statements is the standard. Make sure your P&L, balance sheet, and tax returns tell a consistent, clear story. Separate personal expenses from business expenses now if you haven't already.

Document Your Operations

Buyers want to know the business can run without you. Written procedures, employee handbooks, vendor contracts, and customer agreements all demonstrate that the business is transferable — not just a reflection of the owner's personal relationships.

Reduce Owner Dependence

If you're the sales team, the operations manager, and the accountant, the business is too dependent on you. Start delegating now. Hire or promote key employees into leadership roles. The more the business runs on systems rather than on you, the more valuable it becomes.

Lock In Your Revenue

Recurring revenue, long-term contracts, and subscription models are all attractive to buyers because they reduce risk. If you can convert one-time customers into repeat relationships, do it before going to market.

Assemble Your Team

A business sale involves legal, financial, and strategic expertise. At minimum, you'll want an experienced M&A attorney, your accountant, and a business broker or sell-side advisor. Having the right team in place before you list avoids costly mistakes and delays.