SDE & EBITDA Calculator

Enter the business's financials and add-backs to calculate Seller's Discretionary Earnings (SDE) and EBITDA, then apply an industry multiple to estimate a fair market value range.

This calculator is designed for buyers reviewing owner-operated businesses, broker CIMs, and seller-provided financials. The goal is not to accept the seller's earnings claim at face value. The goal is to rebuild earnings from the bottom up, separate true add-backs from wishful adjustments, and create a defensible number you can use in valuation, SBA underwriting, seller-financing negotiations, and due diligence.

Illustrative figures are prefilled. Replace the inputs with your own deal figures. A result is an estimate, not financing approval.

How to Use This Calculator in a Real Acquisition

Start with the bottom line from the seller's tax return or year-end profit-and-loss statement. Then add back only costs that are documented, non-recurring, or tied to the current owner's personal choices. Add back working-owner compensation only if it reduced the starting net profit; taking cash out of the business does not by itself create an add-back. If the business will require a hired manager, the replacement salary should remain an operating cost and EBITDA becomes the cleaner metric.

Run the calculator once using the seller's numbers, then run it again using your verified numbers. The difference is often the most important diligence finding in the deal. A business marketed at 3x SDE with $75,000 of unsupported add-backs may be overpriced by $225,000. That is why every adjustment should tie back to a tax return line item, bank statement, payroll report, invoice, or written explanation from the seller.

Input Definitions and Verification

Net profit should come from a reliable source, preferably the filed tax return rather than an unaudited spreadsheet. Owner salary includes working-owner compensation only to the extent it was deducted in the net profit entered above. Do not add back owner draws or distributions that did not reduce that profit. For a sole proprietor using Schedule C net profit, personal withdrawals are not deductible expenses, so enter $0 for those withdrawals. Owner perks may include personal vehicle costs, phone bills, travel, club dues, or family payroll above market rate, but only when the expense is truly discretionary and will not continue under a buyer.

Depreciation and amortization are commonly accepted add-backs because they are non-cash accounting charges, but you should still look at maintenance capex. A machine shop with heavy depreciation may also need real replacement spending. Interest expense is added back when the debt will be paid off at closing. One-time expenses require the most skepticism. Legal fees from a closed lawsuit may be valid; recurring repairs labeled "one-time" are usually not.

Worked Example: Normalizing Earnings

Suppose a seller reports $95,000 of net profit, $85,000 of owner salary, $12,000 of owner perks, $18,000 of depreciation, $6,000 of interest, and $8,000 of documented one-time expense. The calculator produces $224,000 of SDE. If similar businesses trade between 2.0x and 3.5x SDE, the implied value range is roughly $448,000 to $784,000 before adjusting for working capital, debt, deal structure, and risk. If diligence later proves that only half of the owner perks are legitimate, SDE falls and the valuation range should fall with it.

Common Mistakes to Avoid

• Mixing SDE and EBITDA multiples: applying an EBITDA multiple to SDE can overstate value because SDE includes owner compensation.
• Counting expenses twice: if a cost is already excluded from net profit, do not add it back again.
• Ignoring replacement labor: if the seller handles sales, estimating, dispatch, or licensed technical work, include the cost of replacing that labor unless you will personally do the job.
• Using projections as earnings: value the business on historical verified earnings, then treat growth plans as upside you have to earn.

SDE vs EBITDA: Which to Use?

Use SDE for owner-operated businesses under roughly $2M in asking price. SDE includes the owner's salary as available earnings — because a new owner-operator will pay themselves from that same pool.

Use EBITDA for larger businesses where a hired manager will replace the owner. EBITDA excludes the owner's salary since management is an ongoing cost the buyer will keep paying.

This calculator shows both. When in doubt, ask the broker or seller which metric they used to price the business — then verify their add-backs line by line against three years of tax returns.

What Moves the Multiple

The ranges above are wide because business quality varies enormously. Businesses at the top of their range have recurring revenue, low customer concentration, documented systems, and clean books. Businesses at the bottom are owner-dependent, have irregular cash flow, or carry deferred maintenance. Negotiate down from the midpoint if you see those risks; pay toward the top if you see genuine defensibility.

Next Step: Model the Deal

Once you have an earnings number and estimated value, model the full deal structure in the AcquireCalc deal calculator: how much seller financing can you negotiate, what assets can fund the purchase, and what's your true cash at closing?