Glossary · Valuation

SDE (Seller's Discretionary Earnings)

SDE is EBITDA plus full owner compensation plus discretionary expenses: the standard metric for owner-operated SMEs under €1m revenue, where the owner is the cash flow.

Definition

SDE (Seller's Discretionary Earnings) totals what a single full-time owner extracts economically from the business: operating profit + salary + benefits + discretionary expenses that aren't strictly required to run the business (personal use of company car, phone, memberships, etc.). A buyer who replaces the owner can redistribute that whole economic pool: hence the need to know it.

For businesses under €1m revenue, SDE is a fairer measure than EBITDA because owner compensation is often a multiple of net profit. Above €1m revenue, or once the owner fills less than 25% of the operational role, the market shifts to EBITDA. SDE multiples are lower than EBITDA multiples (typically 1.5x-3.5x SDE vs. 2.5x-6x EBITDA) because they capture more "owner labour."

Formula

SDE = EBITDA + Owner compensation + Discretionary expenses + Non-recurring items

Worked example

A Ghent physiotherapy practice generates €120k EBITDA. The owner draws €80k salary, €15k benefits, books €12k personal car use and €4k phone/memberships through the business. Plus €8k one-off renovation. SDE = 120 + 80 + 15 + 12 + 4 + 8 = €239k. At a 2.4x sector SDE multiple → enterprise value ≈ €574k.

When it matters

Owner-operated businesses under €1m revenue, where the owner works full-time in operations. Above that threshold, or once a professional management team runs the business, switch back to EBITDA. Common abuse: stacking SDE on top of EBITDA-calibrated multiples: that double-counts and produces an indefensibly high valuation.

Calculate your SDE and multiple range

Frequently asked

When do I use SDE instead of EBITDA?: Below €1m revenue, in owner-operated businesses where owner compensation exceeds profit or where operations stall without the owner. Above that threshold: or as soon as a professional management team runs the business: use EBITDA.
Which expenses do I add to EBITDA to get SDE?: Full owner compensation, benefits, personal use of business assets (car, phone, subscriptions, memberships), and one-off / non-recurring items. If a single owner works part-time, pro-rate.
What is a typical SDE multiple for Belgian SMEs?: Between 1.5x and 3.5x SDE depending on sector and customer concentration. Recurring-contract services land 2.5x-3.5x; transactional service businesses 1.5x-2.2x.

Related terms

EBITDA- EBITDA is earnings before interest, taxes, depreciation, and amortization: the cash-flow proxy on which…
Owner-compensation normalisation- Owner-compensation normalisation replaces the actual owner salary with a market-rate management salary: typically the…

Paired valuation method

/en/waarderingsmethodes/sde

Definition

Worked example

When it matters

Frequently asked

When do I use SDE instead of EBITDA?

Below €1m revenue, in owner-operated businesses where owner compensation exceeds profit or where operations stall without the owner. Above that threshold: or as soon as a professional management team runs the business: use EBITDA.

Which expenses do I add to EBITDA to get SDE?

Full owner compensation, benefits, personal use of business assets (car, phone, subscriptions, memberships), and one-off / non-recurring items. If a single owner works part-time, pro-rate.

What is a typical SDE multiple for Belgian SMEs?

Between 1.5x and 3.5x SDE depending on sector and customer concentration. Recurring-contract services land 2.5x-3.5x; transactional service businesses 1.5x-2.2x.