SDE (seller's discretionary earnings)
Definition
Seller's discretionary earnings is annual net profit plus the owner's own salary, plus one-off and personal costs run through the business. It is the number buyers of $50,000–$150,000 businesses work from, because a single owner-operator's pay is not an operating cost the next owner inherits.
Seller's discretionary earnings (SDE) is the total annual cash a business produces for one full-time owner-operator: net profit, plus that owner's own pay, plus the one-off and personal costs that will not follow the business to its next owner.
What SDE means at this size
At a $50,000–$150,000 close, SDE is the number the whole deal is built on. A business this size is run by one person, and that person's salary is not a cost the buyer inherits in the same shape. Accounting profit on its own understates what the business actually generated. Buyers know that, which is why they ask for SDE rather than the net profit line on a tax return.
SDE assumes one owner. You will sometimes see total owner benefit quoted instead: everything the current owners actually took out, every salary included. With one owner the two land in the same place. With two founders drawing pay, only one salary comes back in SDE, because the buyer still has to cover the second job. Quote total owner benefit as context, never as the basis for price.
SDE on an Indiemaker listing
Indiemaker listings don't show SDE. The profit and the multiple on a listing are worked out from the monthly revenue and costs the seller declares, with no add-backs applied. Whether the owner's own pay sits inside those costs is up to the seller, so ask. SDE is the figure you build in diligence, from the monthly record, once you have unlocked the listing.
Where it bites
Add-backs are where SDE goes wrong. A one-off trademark filing or a laptop replacement will usually stand. A design tool the product still depends on will not, however personal it feels. Each add-back a buyer strikes out reduces SDE, and that reduction is then multiplied.
Worked example
A micro-SaaS at $3,000 MRR bills $36,000 across the trailing twelve months. Hosting, email and payment processing take $4,800. A contractor handled $3,600 of support. The founder paid themselves $9,000 and ran $1,200 of one-off costs through the business: a rebrand and an accountant's setup fee.
Net profit reads $17,400. SDE is $17,400 plus $9,000 plus $1,200, so $27,600. On the market convention of 3× trailing annual profit for micro-SaaS, that prices the business near $83,000. The net profit line alone would have suggested $52,000.
Why it matters when you exit
SDE sets the base the multiple lands on, so an hour spent documenting a defensible add-back usually beats an hour spent arguing about the multiple. Prepare it before you list: twelve clean months, each add-back named, with a receipt behind it. Buyers pay for figures they can check themselves.
Related: add-backs, annualised-profit, profit-multiple, trailing-twelve-months
See what a business at this level is listed at.
Everything on sale between $50,000 and $150,000, on the same fields.