P&L inputs
Owner add-backs
SDE is EBITDA plus the compensation and perks that go away in a sale.
Only one owner's full comp. Buyers assume a market-rate replacement cost.
Payroll taxes, health insurance, retirement match for the owner only.
Vehicles, phones, travel that aren't actually for the business. Keep this clean and documented.
Legal, settlements, severance that won't recur. Document each one.
How to use it
SDE is the number buyers use for owner-operated businesses — usually under about $2M in EBITDA. It takes EBITDA and adds back the pay and perks the current owner takes out, since a new owner would set those at a different level.
- Only add back one owner's compensation. If there are two active owners, keep the second as a replacement expense.
- Document every personal expense add-back. If you can't tie it to a bank statement or receipt, don't add it back.
- One-time items get add-backs; one-time trends don't. A legal settlement is one-time. A spike in advertising isn't.
What it returns
SDE, the margin it implies on revenue, and a value range using typical small-deal SDE multiples. Multiples usually land between 2× and 3.5× — larger, cleaner, more systems-driven businesses sit higher in the band.
If adjusted EBITDA is north of ~$2M, flip to the EBITDA calculator instead. Buyers at that size price on EBITDA, not SDE.
How this tool works
SDE is Seller's Discretionary Earnings — the number buyers use to price owner-operated businesses, usually under about $2M in EBITDA. It takes EBITDA and adds back the compensation and perks the current owner takes out, since a new owner would set those at a different level.
We add back one owner's full compensation (W-2 wages plus payroll taxes and benefits), documented personal expenses in the P&L, and one-time items. Second owners stay as replacement cost. For a cleaner replacement-cost comp number, run it through the salary normalizer.
The implied value range uses 2×, 2.75×, and 3.5× SDE — the typical band for owner-operated home-services businesses. For a side-by-side breakdown of SDE vs. EBITDA, see SDE vs. EBITDA on mainstreetwealth.ai. For non-owner-operated deals, flip to the EBITDA calculator.
See also on mainstreetwealth.ai
Frequently asked questions
When should I use SDE instead of EBITDA?
Can I add back two owners' salaries?
What personal expenses can I add back?
What SDE multiple should I expect?
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