What is SDE in business?

SDE — Seller's Discretionary Earnings — is the cash flow a single full-time owner-operator can take home from a small business. Formula: net profit + owner salary + interest + depreciation/amortization + legitimate discretionary add-backs.

Is this SDE calculator free?

Yes. The Acquidex SDE Calculator is free to use, no signup required. It applies the same add-back logic SBA lenders use under SOP 50 10 8.

What add-backs do SBA lenders accept?

SBA lenders accept add-backs that are documented, non-recurring, and not required to operate the business post-close: owner salary (one owner only), interest, depreciation, owner health insurance, personal vehicle, one-time legal fees. They reject chronic items: deferred maintenance, recurring marketing labeled "one-time," below-market related-party rent.

What's the difference between SDE and EBITDA?

SDE adds back one full-time owner's compensation and is used for owner-operator small businesses. EBITDA assumes a management team is already in place and does not add back owner salary. SMB acquisitions under $5M typically use SDE; lower-mid-market deals use EBITDA.

Acquidex · Tool · Calculator · SBA Underwriting

SDE Calculator · v1.0

Updated 2026-05-09

SDE normalization, the way SBA lenders read it.

Establishing a defensible earnings baseline is the first step in any acquisition. Strip add-backs to SBA SOP 50 10 8 standards and surface the gap between broker-presented and lender-adjusted SDE — typically 15–35% on first-pass deals.

§ 01 · Engine

Run the normalization.

Calculation Inputs

Standard Normalization

Step 1: Reported Net Income

Enter the final Net Profit as shown on the most recent 12-month P&L or Tax Return.

Step 2: Add-Backs & Adjustments

Owner's Salary

owner

$80,000

Owner Health Insurance

owner

$12,000

Depreciation & Amortization

non cash

$15,000

Interest Expense

non cash

$5,000

Normalized SDE

$262,000

Base Net Income$150,000

Total Adjustments+$112,000

Verification Basis

This represents the discretionary cash flow available to a single operator.

Normalization Integrity

Proper SDE normalization follows IRS and SBA-standard guidelines to ensure cash flow is accurately represented. Always review your final adjustments with a qualified CPA or specialized M&A advisor before committing to a valuation.

§ 02 · Standards

What counts as a valid add-back?

VALID

Usually survives lender stripping

One-time legal fees

High

Closing/transaction expenses, one-off litigation that has settled, founding-entity setup costs.

Truly personal expenses

Med

Owner vehicle and phone, owner health insurance, owner travel — only the share that genuinely will not continue post-close.

Excess family payroll

High

Wages paid to family members not actually working in the business — backed by a clear org chart and substitution plan.

Non-recurring professional fees

Med

One-time consulting, audit, or system-implementation fees with documentation that the engagement has ended.

INVALID

SBA underwriters strip first

Chronic underpaid labor

High

Owner working 60+ hours absorbing roles a successor will need to hire — replacement-cost adjustment is required by SBA.

Deferred maintenance

High

Capex and repairs the seller has been postponing. The buyer inherits the bill; not a real cash flow benefit.

Recurring marketing as "one-time"

Med

Trade shows, lead-gen subscriptions, ongoing agency retainers labeled "non-recurring." Lenders strip these first.

Below-market related-party rent

High

Owner-real-estate rent priced under market — the new owner will face market rent, restoring the expense post-close.

Revenue "add-backs"

High

Hypothetical future revenue, "if we had pursued X" line items. SDE is a cash-flow figure, not a forecast.