Seller Discretionary Earnings Calculator

Add-backs are worth the multiple.

Add-backs are worth the multiple. Add-backs are worth the multiple, so a £74,000 adjustment at three times is £222,000 of price.

Written and maintained by Mohit PatelLast checked August 4, 2026How we build these

Currency

Annual revenue

Cost of goods sold

Operating expenses

Owner salary

Owner benefits and personal expenses

Genuine one-off costs

Depreciation and amortisation

Cost of a manager to replace you

Valuation multiples vary widely with market conditions, buyer type and the quality of the business. These are planning estimates, a broker's valuation and a completed sale are different things again.

Seller discretionary earnings

$323,000

$240,000 of accounting profit

Net profit$240,000

Add-backs$83,000

SDE$323,000

SDE less a replacement manager$281,000

Add-backs are worth the multiple, so a $83,000 adjustment at 3× is $249,000 of price. Buyers scrutinise them heavily and a padded list damages credibility more than the disputed items are worth. Note that EBITDA here is $249,000, which is the figure a larger acquirer would work from.

How the Seller Discretionary Earnings Calculator works

Add-backs are worth the multiple, so a £74,000 adjustment at three times is £222,000 of price. Buyers scrutinise them heavily, and a padded list damages credibility more than the disputed items are worth.

Also known as: SDE calculator · owner benefit calculator · add backs for valuation

Building the number

Seller's discretionary earnings starts with net profit and adds back the things a new owner would not necessarily incur. It is the standard earnings measure for owner-operated businesses below roughly a million in profit.

The standard add-backs: the owner's total compensation including salary, dividends and benefits; interest, since the buyer will have their own financing; depreciation and amortisation as non-cash charges; and genuinely one-off or non-recurring expenses.

Then personal expenses run through the business: a vehicle used privately, travel that was partly a holiday, a phone contract, subscriptions that serve the owner rather than the business. Each is legitimate to add back and each needs to be evidenced.

One owner or several

SDE assumes a single owner-operator. Where two or more people work in the business, only one full compensation package is added back and the others are treated as employees at market rate.

That catches out partnerships and family businesses, where two founders each drawing a salary expect both to be added back. A buyer will not accept it, because they would have to employ someone to do the second job.

The correct treatment is to add back one owner's compensation and replace the others with the market cost of the roles they perform. Where a spouse works unpaid, the reverse applies: the market cost of that role should be deducted, because the buyer will have to pay for it.

The market salary adjustment

Adding back the full owner's salary assumes the buyer will do the work themselves. Where the buyer intends to hire a manager, the earnings available to them is SDE minus that manager's cost.

Which is why the same business is worth different amounts to different buyers. An owner-operator buying a job values SDE directly; a portfolio buyer or an investor values SDE minus management cost, which is closer to EBITDA.

Understanding which type of buyer you are talking to changes how the business should be presented. To an operator, the low overhead is a selling point. To an investor, a business that only works because the founder does forty hours of unpaid work is a business that does not work.

What buyers reject

Add-backs without documentation are the first casualty. An assertion that £8,000 of travel was personal, with no itemisation, will be removed from the calculation entirely.

Recurring costs described as one-off are the second. A legal fee that appears in three consecutive years is not exceptional, and describing it as such damages credibility on everything else in the schedule.

Marketing spend described as experimental is the most common contested item in ecommerce. A seller argues that £30,000 of advertising was a test and could be cut; a buyer observes that revenue was earned while it was running and declines to add it back. Unless the spend can be shown to have produced no revenue, the buyer is usually right.

Presenting it credibly

The document that works is a schedule: every add-back listed as its own line, with the amount, the reason and a reference to the supporting evidence.

Conservative is better than aggressive. A schedule with a small number of well-evidenced add-backs survives diligence intact. One with forty items, several of them optimistic, invites scrutiny of all of them and frequently produces a lower final figure than a modest schedule would have.

The credibility effect compounds. A buyer who finds the first three add-backs they check are exactly as described tends to accept the rest. One who finds an inconsistency early examines everything, and the deal slows and reprices.

Where to go next

The Seller Discretionary Earnings question rarely arrives on its own. These are the ones that usually come with it:

Ecommerce Business Valuation Calculator — The multiple is driven by durability, not size.
EBITDA Multiple Valuation Calculator — Enterprise value is not what the seller receives.
Revenue Multiple Valuation Calculator — It ignores margin entirely.
Etsy Fee Calculator — Every Etsy fee on one sale, itemised.

Not financial advice. Marketplace fees change, and they vary by country, plan and seller status. Every rate here is an editable default, not a quoted price, check the platform's current fee schedule before you price a product against it. This is not tax or business advice.

Frequently asked questions

What is seller discretionary earnings?

Net profit plus the owner's salary, personal expenses run through the business, genuine one-offs and non-cash charges. It represents what a single owner-operator takes from the business.

What counts as a legitimate add-back?

Costs a new owner would not incur: your salary, personal vehicle, one-off legal fees, discontinued projects. Anything ongoing and necessary is not an add-back however much you dislike it.

How does SDE differ from EBITDA?

SDE adds back the owner's compensation; EBITDA does not. Smaller businesses are valued on SDE because the owner works in them; larger ones on EBITDA because they have management.