What Is the SDE Multiple Method?
The SDE (Seller's Discretionary Earnings) multiple method is one of the most common ways to value a small, owner-operated business. SDE represents the total financial benefit a single full-time owner derives from the business each year — it is calculated as net profit plus the owner's salary, owner perks, one-time expenses, interest, taxes, depreciation, and amortization added back. To estimate value, you multiply SDE by a market-based "multiple" that reflects how buyers in that industry price similar businesses.
How to Use This Calculator
Enter your annual Seller's Discretionary Earnings and the multiple that applies to your industry. Typical small-business SDE multiples range from about 1.5x to 4x, depending on industry, growth, owner dependence, and recurring revenue. The calculator instantly returns the estimated business value so you can sanity-check an asking price or offer.
The Formula Explained
The math is simple: $$\text{Business Value} = \text{SDE} \times \text{Industry Multiple}$$ The challenge is choosing a defensible multiple. Stable, transferable businesses with diversified customers and recurring revenue earn higher multiples; businesses heavily dependent on the owner earn lower ones. The multiple effectively prices the risk and durability of those earnings.
Worked Example
Suppose a landscaping company generates $200,000 in SDE and comparable businesses in the sector sell for a multiple of 2.5x. The estimated value is $$200{,}000 \times 2.5 = \$500{,}000$$ If a buyer believes the business is unusually owner-dependent, they might apply 2.0x instead, lowering the value to $400,000.
FAQ
What's the difference between SDE and EBITDA? SDE adds back a single owner's salary and discretionary perks, making it ideal for owner-operated small businesses. EBITDA is used for larger companies with professional management.
What multiple should I use? Research recent sales of comparable businesses in your industry. Brokers and databases like BizBuySell publish typical ranges — most small businesses fall between 1.5x and 4x SDE.
Is this a formal valuation? No. This is a quick estimate. A formal valuation considers assets, working capital, debt, and market conditions, and is best performed by a qualified appraiser.
