The True Meaning of SDE:

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Why Sellers and Buyers Choose Sailfish Equity Advisors

1,000+ Businesses Sold – Real-world experience backed by proven results

1. 25+ Years of Deal-Making – We know how to position and defend SDE for top-dollar exits

2. Built, Scaled, and Sold Our Own Companies – We sit on your side of the table

3. Hands-On, Confidential Process – No templates. No guesswork. Just strategy that works

4. Nationwide Buyer Network – From private equity to individual operators, we bring serious buyers to the table

5. Mission-Driven, Owner-Focused – You’ve built the business—we help you protect the legacy and get paid for it

 

The True Meaning of SDE: Why It Drives Your Business Valuation

Let’s cut the fluff.

If you’re asking “What’s my business worth?”, you’re not really looking for a spreadsheet. You’re looking for a number that secures your future. The number that lets you walk away proud. Free. Ready for what’s next.

That number? It starts with SDE—Seller’s Discretionary Earnings.

And if you don’t understand SDE, you’re flying blind in a world where precision makes you rich and assumptions make you broke.

So let’s break it down—Cody Sanchez style. Tactical. No jargon. Real money moves.

What Is SDE—And Why It’s Not Just Some Accounting Term

SDE stands for Seller’s Discretionary Earnings. It’s the real earning power of your business after you strip out the noise.

This number answers one big question for buyers:
If I buy this business and run it myself, how much money will I actually make?

It’s the true profit a hands-on owner can expect. Think of it as your business’s cash machine output—not on paper, but in your pocket.

SDE = Net Profit + Add-Backs

Here’s the formula in simple terms:

**SDE = Net Income

• Owner’s Salary

• Perks (vehicle, meals, insurance)

• One-Time Expenses

• Depreciation & Amortization

• Interest & Taxes (non-cash or non-recurring)**

In other words, we add back anything that doesn’t transfer to a new owner. Why? Because smart buyers only care about what they can walk away with.

A Real-World Example of SDE

Let’s say your business shows this:

• Net Income: $100,000

• Owner’s Salary: $80,000

• Personal Car Expense: $6,000

• One-Time Legal Fees: $12,000

• Depreciation: $5,000

• Interest: $3,000

Total SDE: $206,000

That’s the number we use to drive your valuation. Not net income. Not revenue. Not what your buddy’s business sold for last year. Your SDE is the foundation of your exit.

How SDE Drives Your Business Valuation

Here’s the part where the game changes.

Once we know your SDE, we apply a multiple to determine what your business is worth.

Let’s say your SDE is $300,000. If your industry typically sells for a 2.8x multiple, your business might be worth around:

$300,000 x 2.8 = $840,000

That’s your ballpark valuation. But here’s the kicker: The multiple isn’t fixed. It’s a moving target based on:

• Business size

• Recurring revenue

• Customer concentration

• Owner involvement

• Growth potential

• Industry trends

• Clean financials

• Competitive moat

Want a higher multiple? Build a better business.

What Buyers Really Look for in SDE

Buyers don’t just look at the number—they scrutinize the story behind it.

They ask:

• Are these add-backs real?

• Are they one-time or recurring?

• Is the business dependent on the owner?

• Are there clean books to support the claims?

This is why “just winging it” or relying on your CPA isn’t enough. You need a broker who can build the narrative and defend it under buyer pressure.

For Sellers: How to Maximize SDE Before You Sell

If you’re thinking of selling your business, the first thing you should do is clean your books and optimize your SDE.

Here’s what we tell our sellers:

• Document every add-back: Every dollar you want to count must be backed by a receipt or explanation. Vagueness kills deals.

• Cut unnecessary expenses: You’re not optimizing for taxes now—you’re optimizing for a high valuation.

• Eliminate personal expenses: Buyers will discount what they can’t verify.

• Reduce owner reliance: If you’re the business, your SDE is riskier—and your multiple drops.

Your job: Make your SDE clean, provable, and transferable.
Our job: Position it for a premium exit.

For Buyers: Why SDE Isn’t the Whole Picture

If you’re a buyer, don’t take SDE at face value. This is where most rookie buyers get burned.

Here’s what to ask:

• Can I replicate this SDE? If the owner is working 70 hours a week, can you? Will you?

• What am I adding back that I may still need? (Like the owner’s salary, if you plan to hire a GM)

• Does the SDE reflect future performance or past conditions?

At Sailfish Equity Advisors, we help buyers separate fiction from fact. Because buying a business should create cashflow, not chaos.

The Role of a Business Broker in Getting SDE Right

Let’s get honest.

Most business owners undervalue their companies—or worse, overinflate them with sloppy numbers. And most buyers get stuck in the weeds, missing great opportunities because they don’t understand what SDE really represents.

That’s where Sailfish comes in.

With 25+ years of experience and over 1,000 businesses sold, we specialize in:

• Uncovering the true SDE

• Defending it with data and story

• Positioning your business for the right multiple

• Connecting you with qualified, serious buyers

• Keeping everything confidential and professional

We don’t throw your listing on a website and hope for the best. We run a proven, strategic process that turns your SDE into real money—without the drama.

When Is the Best Time to Sell a Business?

Simple:
When your SDE is climbing and your involvement is declining.

Buyers pay a premium for businesses that:

• Have clean, upward-trending SDE

• Are less dependent on the owner

• Show operational systems and repeatable growth

That means the best time to prepare is before you’re ready to sell. Not when you’re burnt out or desperate.

Thinking 1–3 years ahead can mean hundreds of thousands more in your pocket.

What’s Your Business Really Worth?

If you want to know what your business is worth, don’t just Google comps. And don’t trust some “valuation calculator” on a broker’s website.

Your value lives in your SDE—and how well it’s packaged and positioned.

At Sailfish Equity Advisors, we specialize in helping owners answer that question with clarity and confidence. Whether you’re selling now or building toward a future exit, we’ll help you turn your business into a sellable, scalable asset.

Final Word: You Built the Business. Don’t Undersell the Exit.

SDE isn’t just a number—it’s the scoreboard of your effort. And if you’re going to cash out, you better make sure it reflects everything you’ve built.

If you're serious about selling your business—or buying one that’s worth your time—it all starts with getting SDE right.

Let’s make sure the story behind your numbers is one that gets you paid.

Want a confidential, no-obligation valuation?
Start with Sailfish. Let’s talk.