SDE (seller's discretionary earnings)

SDE (seller’s discretionary earnings) — a small business’s pre-tax profit plus the owner’s salary and benefits plus genuinely one-time or personal expenses run through the books. It answers: “if I owned this and worked it, what’s the total benefit?” — which makes it the metric for owner-operated businesses, where EBITDA (which assumes a market-rate manager is already paid) would double-count. Small businesses trade at 2–3× SDE; the difference between the two metrics is literally the owner’s job, priced — value SDE as if it were EBITDA and you pay twice for a salary you’ll be earning yourself.

First used in: 4.1 · Semi-passive businesses: the honest tier