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, sometimes by a third or more. Buyers know that, which is why they ask for SDE rather than the net profit line on a tax return.
SDE assumes one owner. If the business genuinely needs two full-time people, only one salary comes back and the second stays as a running cost. Founders who worked alongside a paid contractor sometimes add both back, then wonder why the offers arrive low.
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, total-owner-benefit, 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.