Seller’s Discretionary Earnings (SDE)

What is it?

Seller’s discretionary earnings (SDE) is a way to look at the profit of a small business the owner runs personally. It adds the owner’s pay, the owner’s personal costs, one-time costs and non-cash costs (such as depreciation) back to the business profit, to show “the money the owner can really take from this business”.

How is it used?

A multiple is applied to SDE to get a rough business value. Example: SDE of $150,000 a year and a multiple of 2.5 gives about $375,000 (a made-up example). There is no fixed multiple. It changes with the lease term, the sales trend, whether the business runs without the owner, and the market mood.

What to watch out for

SDE is a concept used in business sales, not an official accounting standard, so what is added back can differ between brokers.
Check with documents that the items added back as “the owner’s personal costs” are really unrelated to the business.
Some sellers claim cash sales are missing from the books. Check against tax returns, HST returns and bank deposits.

What the law and official sources say

Quotes are copied word for word. The "In plain words" lines are our explanation, not an official translation.

Corporate Finance Institute, Seller’s Discretionary Earnings (a training site)Seller’s Discretionary Earnings

Seller's discretionary earnings is a cash-flow based measure of business earnings in an owner-operated business. It comprises the profit before tax and interest of a business before the owner's benefits, non-cash expenses, extraordinary one-time investments, and other non-related business incomes and expenses.

In plain wordsSDE is a cash-flow based measure of profit for an owner-run business, built from the profit before the owner’s benefits, non-cash costs and one-time investments. This source is a finance training site, not a government body or an association.

Source: corporatefinanceinstitute.com/resources/valuation/sellers-discretionary-earnings/ · checked Nov 2, 2026

Common questions

How is SDE different from EBITDA?

SDE adds back the owner’s pay and personal costs, so it suits small businesses the owner works in. EBITDA often treats the owner’s pay as a cost, so it suits larger businesses run without the owner.

What multiple do I use for SDE?

There is no fixed number. It changes with the trade, the timing, the lease terms and the market mood, so ask a broker who knows recent similar deals and an accountant. The example numbers on this site are made up to show the arithmetic.

Guides that use this term

Sources checked

Corporate Finance Institute, Seller’s Discretionary Earnings · checked Nov 2, 2026