Seller’s Discretionary Earnings
What, Why and How’s of SDE
Small businesses are typically priced on how much the company makes – it’s earnings. The exact metric for earnings is SDE, Seller’s Discretionary Earnings, which approximates the total sum cash flow of what an owner/operator takes out of the business.
This module will cover:
- Why use SDE and not actual cash flow – which would theoretically be better?
- Why exclude all those items from SDE? (Like interest, depreciation, etc.)
- Adjusting SDE for any wages and owner benefit
- Adjusting SDE for occupancy costs
- Which time periods are used to measure SDE?
- Tax Returns and accountant reports
The first few modules are designed to prepare you to assist in a valuation of your business. This module covers the basics of SDE and why we even use SDE when valuing a business.