SDE explained, with a worked example

Ask an owner what their business makes and you will usually get the profit figure from the bottom of the tax return. Ask a buyer and they will ask a different question: how much money would be available to me, if I owned this and ran it myself? Those are not the same number, and the gap between them is often larger than the profit figure itself.

Seller's discretionary earnings — SDE, sometimes called owner benefit or discretionary cash flow — is the second number. It is the profit shown on the return, plus the owner's own compensation, plus the genuinely personal expenses that ran through the business, plus a handful of accounting charges that are not cash going out of the door. Nearly every small business sold in the United States is priced as a multiple of it.

The calculation

Start with net profit as reported. Then add back, one line at a time:

• Your salary, and the payroll taxes on it. A buyer decides for themselves what to pay an owner-operator, so your figure is not a cost they inherit. Include the employer payroll taxes you paid on it.
• Your health insurance and retirement contributions, where the business paid them for you personally.
• The personal share of vehicle costs. The personal share only. If the trucks are genuinely needed to do the work, they are an operating cost and no buyer will accept them as an add-back.
• Personal travel, meals, and entertainment run through the business.
• Depreciation and amortisation. Non-cash accounting charges, added back by convention — though see the warning below.
• Interest. Most buyers will finance the business differently from the way you did, so your debt service is not theirs.
• One-time costs that will not recur. A lawsuit settled, a one-off equipment purchase, a marketing experiment that failed.
• Above-market wages to family. Only the excess above what you would pay a stranger for the same work, and only if the work would still need doing.

A worked example

Hillside Landscaping is invented for this page — the figures are illustrative, not drawn from any real business or any transaction database. A single owner, six employees in season, a mix of maintenance contracts and installation work.

A business that appeared to make $41,000 earns $162,002 on the basis a buyer uses. Nothing has been invented: every line is a real payment that a new owner would either not make, or would choose for themselves.

What was deliberately left out

Two things did not go into that column, and both matter. The owner's son works summers at the going rate for the work he does — that is a wage the buyer inherits, so it stays as a cost. And the business share of the pickup stayed out too; only the personal portion was added back. An add-back schedule that quietly claims the whole truck is the fastest way to lose a buyer's confidence in every other line on the page.

What the number is used for

Published multiple ranges exist for most industries, and applying one to your SDE produces market context — not a price. For landscaping, three freely-readable sources we hold in our data bank say the following, checked on 29 July 2026:

• Peak Business Valuation: "SDE multiples for landscaping businesses often range from 2.76x to 3.21x SDE."
• Raincatcher (11 May 2026): "Smaller, owner-operated landscaping companies are valued on Seller's Discretionary Earnings (SDE). The typical range is 2x to 4x."
• FieldRoutes (19 June 2024): "The SDE is then multiplied by an industry multiple, typically in the 2x to 6x range."

We publish the band where at least two independent sources overlap, which for landscaping is 2.0x to 4.0x. Rounding Hillside's SDE to $162,000, that band spans $324,000 at 2.0x to $648,000 at 4.0x.

Three ways the number goes wrong

Mixing up the basis

Multiples are quoted on different bases and they do not interchange. Some online-business brokers quote multiples of monthly net profit; restaurants are frequently discussed as a percentage of annual gross revenue instead. Applying a monthly multiple to an annual figure overstates the result roughly twelvefold, and people do make that mistake. Every range we publish is annual SDE, and we say so on every row.

Not knowing what the multiple includes

Two sources can quote near-identical numbers on quite different terms. For bars and taverns, William Bruce's range is stated as discretionary earnings plus inventory at cost — and for a bar, the liquor stock is a material sum — while Peak Business Valuation's range states no inventory treatment at all. Before you accept or counter any offer, get your accountant to confirm what basis it is on: what is included, what is excluded, what debt is assumed, and what happens to the cash in the account.

Assuming SDE is the same as EBITDA

It is not. EBITDA does not add back the owner's compensation; it assumes the business pays a manager to do the work. Larger businesses are priced on EBITDA and carry lower multiples as a result, which is why a multiple borrowed from a bigger-company article will mislead you. By the same convention, SDE describes the earnings available to a single working owner. If two of you draw salaries and both work in the business, only one of those salaries is conventionally added back — the second is a real cost the buyer takes on. Your accountant will tell you which convention applies to your situation.

What we do with your SDE

Our workbook computes the figure from your inputs with every line of the arithmetic shown, lists each add-back under the label you gave it, and sets the result beside the published ranges for your industry with the source name, the URL, the date, and the quoted sentence reproduced in full so you can judge the source yourself. It is context for a pricing conversation with your accountant. It is not a certified opinion of value, and the asking price remains entirely your decision.

What we do not do is paper the transaction. ExitKit is not a business broker, a law firm, or an appraiser: when you find a buyer, the purchase agreement and everything around it are for a licensed attorney in your state who has read your actual circumstances. What we prepare instead is the handoff packet that lets that first meeting start with the facts already assembled, which is the part that makes their bill smaller.

Once you have the number, the next questions are what a buyer will want to see behind it — covered in what buyers will ask for — and how the whole sale sequence fits together, in selling without a broker.