SDE (Seller’s Discretionary Earnings)

SDE is the standard earnings figure for owner-operated online businesses under roughly $5M. It starts from net profit and adds back the owner’s compensation, non-essential or personal costs, and one-time expenses, to show what the business actually generates for its owner.

Because SDE includes add-backs, it is also where sellers inflate. The add-backs are the first thing to check in diligence: a salary added back for a role the buyer will have to hire for is not really discretionary.