SDE (Seller's Discretionary Earnings)

Definition

Owner earnings: profit with the owner's pay and perks added back.

Why It Matters

Nearly every main-street listing is priced as a multiple of this figure, so it sets the asking price before you negotiate a thing. Because the add-backs are where an owner dresses the number up, most of screening is really an argument over what really belongs in SDE, and at a 3x multiple every soft dollar you accept costs three dollars of price.

In numbers: A shop reporting $1.1M of pre-tax profit, a $150k owner salary, and $90k of one-time and personal expenses shows $1.34M of SDE; at 3x that supports a $4.02M asking price.