Small business valuation base.

Seller Discretionary Earnings (SDE) adds back owner compensation, interest, depreciation, amortization, and one-off costs to net income. It's the standard valuation metric for owner-operated small businesses below 5M revenue. Unlike EBITDA (which assumes professional management), SDE reflects what a working owner would actually take home.

200k net income + 100k owner salary + 20k benefits + 10k interest + 40k D&A + 15k one-offs = 385k SDE. At typical small-business multiples of 2.5-3.5x, the business would value 963k-1.35M. Buyers apply SDE multiples; sellers should prepare SDE workings with documentation when going to market.

SDE vs EBITDA matters for deal sizing. For businesses under 1M earnings, SDE is standard because buyer takes over owner role. For businesses over 2M, EBITDA becomes standard because the buyer hires professional management rather than working owner-operator. Mid-sized businesses sometimes report both with different multiples applied.

A worked example

Try the defaults: net income of 200,000, owner salary of 100,000, owner benefits of 20,000, interest expense of 10,000. The tool returns 385,000.00. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Net Income, Owner Salary, Owner Benefits, Interest Expense, and Depreciation + Amortization. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

The formula behind this

SDE = net income + owner salary + owner benefits + interest + D&A + one-off items. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

What the score tells you

Headline financial numbers — income, savings, debt — each tell part of the story. This calculation stitches several together into a single read you can track over time. The value is in the direction, not the absolute number.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.