BTB Buyer Guide
What Is SDE?
Seller's discretionary earnings, commonly called SDE, is a cash-flow measure frequently used when discussing owner-operated small businesses. A seller or broker may present an SDE figure, but a buyer should understand how it was constructed instead of assuming every adjustment is valid.
BTB guide · Updated September 30, 2026
What buyers should check
Start with reported business earnings, then identify the specific owner compensation, discretionary expenses, one-time items, interest, taxes, depreciation or amortization included in the seller's calculation. An add-back should have evidence and a defensible reason. BTB's Deal Analyzer keeps the seller-stated SDE separate from the buyer-selected SDE so differences stay visible.
Simple SDE reconciliation example
Suppose a seller presents $150,000 of SDE. Instead of accepting the headline number, trace it back to the underlying profit and identify every adjustment. If $25,000 depends on an expense the buyer believes will continue after closing, the buyer-selected earnings view may be lower. The point is not to automatically reject an add-back; it is to make every adjustment visible and supportable.
Compare SDE with EBITDA before applying an earnings multiple.
Put the guide to work
Educational information only. Verify transaction, legal, tax, accounting and lending questions with qualified professionals and current source material.
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Business buying guide · SDE explained · Valuation guide · Due diligence · Seller financing · Making an offer