Business Valuation Calculator (SDE Method)
Estimate the market value of your small business using the Seller's Discretionary Earnings multiple method.
How to Use the Business Valuation Calculator
Valuing a small business is more of an art than a science, but the Seller's Discretionary Earnings (SDE) method is the gold standard for main-street businesses (those with values under $5 million). This calculator helps you normalize your earnings to show the true financial benefit a single owner-operator receives from the business.
What is Seller's Discretionary Earnings (SDE)?
SDE is a calculation used to determine the total financial benefit a business provides to a single owner. It starts with the net profit and "adds back" certain expenses that a new owner might not incur or that represent personal benefits. Common add-backs include:
- Owner's Salary: The W-2 wages the owner pays themselves.
- Depreciation: A non-cash expense that reduces taxable income but doesn't cost cash.
- Interest: Debt service that depends on the current owner's capital structure.
- One-time Expenses: Non-recurring costs like a website redesign, legal fees for a specific settlement, or a new roof.
Determining the Right Multiple
Most small businesses sell for between 2x and 4x their SDE. The multiple depends on several factors:
- Industry: Tech and manufacturing usually command higher multiples than retail or landscaping.
- Growth: Is the revenue increasing year-over-year?
- Transferability: Can the business run without the current owner?
- Risk: Are there concentrated customers or high employee turnover?
Real-World Example
Imagine a local coffee shop. The tax return shows a Net Profit of $50,000. However, the owner paid themselves a salary of $60,000, had $10,000 in depreciation, and paid $5,000 in personal health insurance through the business. Their SDE is $125,000. If the industry multiple is 2.5, the business valuation would be $312,500.