Free calculator
Owner earnings calculator
- Cash before tax
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- Your take-home
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- Effective hourly rate
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- Versus the salary you gave up
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- SDE consumed by debt
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Your tax rate is a single input here; real tax depends on entity type, state, other income and a dozen elections. Ask your CPA. Hours are your estimate — most first-time owners work more in year one than they planned.
Why SDE is not your income
Seller’s discretionary earnings measures what the business generates for an owner-operator before financing. That is the right basis for valuing it and the wrong basis for planning your life, because three things come out before you see any of it:
- Debt service. The loan you took to buy it. First call on the cash, and not negotiable.
- Reinvestment. The equipment that wears out. A business whose capex you defer is a business you are quietly liquidating.
- Tax. On whatever is left, at a rate that depends on structure and circumstances a calculator cannot know.
The residue is your income. On a leveraged acquisition it is routinely a third of SDE or less in the early years, which is normal — and worth knowing before you sign rather than after.
The hourly rate is the uncomfortable one
Owner-operators rarely compute it, and it is the most clarifying number here. A business paying you $95,000 for a 40-hour week is a different proposition from one paying $95,000 for 70 hours, and the listing describes both the same way.
Be honest about year one in particular. You will be learning the business, meeting every customer, and finding out which of the previous owner’s routines were load-bearing. Most first-time buyers work considerably more than they planned.
“Am I buying a job?” is not a yes or no
Plenty of good acquisitions pay less than the buyer’s previous salary in year one. That is a legitimate trade if you are buying equity, control, and a cash flow that improves as the debt amortises — the loan payment is fixed while the business, hopefully, is not.
It stops being a legitimate trade when the number never improves, when the hours never fall, or when the business cannot run without you and therefore cannot be sold. That is the distinction worth testing, and owner dependence is where it usually shows up first.
Frequently asked questions
Should I subtract a salary for myself as well?
No — that would double-count. SDE already includes the owner\u2019s compensation, which is why the residue here IS your pay. If instead you plan to hire a manager and stay out of the business, subtract that manager\u2019s cost from SDE first and read the result as an investment return rather than a wage.
Why include capex when the lender does not?
Because you have to replace the equipment whether or not the loan documents mention it. Lenders vary in how they treat reinvestment; the fridge does not. Leaving it out produces a take-home figure that looks fine until the compressor fails.
What tax rate should I use?
Whatever your CPA tells you, for your entity and your circumstances. The default here is a placeholder, not advice \u2014 an S-corporation owner in New York City and a sole proprietor upstate face very different effective rates on the same profit.
The number is lower than my salary. Should I walk away?
Not necessarily, but decide deliberately. You are trading current income for equity, control and a cash flow that improves as the loan amortises. The question is whether the improvement is real and whether the business could be sold without you \u2014 not whether year one pays better than your job.
Educational only — not a valuation, a loan pre-approval, or a lender's number. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. The formulas behind this tool are documented on the methodology page.