Free calculator
SDE calculator
- Optimistic SDE
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- Lender-accepted SDE
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- Add-back inflation
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- Reconstructed SDE
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- Implied price at 2.5×
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This is not a valuation, a loan pre-approval, or a lender's number. It is arithmetic on figures you supply. Everything runs in your browser: no email gate, no signup, and your inputs are never sent anywhere.
The formula, in full
SDE = net profit + owner’s total compensation + interest + depreciation and amortisation + non-recurring expenses + personal expenses run through the business − non-operating income.
The lender-accepted variant is the same formula with two haircuts applied before the addition: non-recurring expenses count at 50%, personal expenses at 75%. Those two percentages are a modelling convention used to approximate the scrutiny an SBA 7(a) lender and a quality-of-earnings analyst apply — they are not a published SBA rule, and no lender is bound by them. They exist to stop the tool flattering a listing.
How to read the gap between the two numbers
A small gap means the earnings rest on add-backs that are hard to argue with: owner salary, interest, depreciation. A large gap means the asking price depends on the seller’s characterisation of “one-time” and personal spending — the two categories that get challenged first. If the listing’s implied multiple only works on the optimistic number, you have found the negotiation, and probably the reason the business has not sold yet.
For the conceptual background — why owner-operated businesses use SDE at all, and which add-backs survive scrutiny — read SDE vs EBITDA. For what happens to your number once a lender has it, read the SBA 7(a) underwriting walk-through.
Two numbers, from the same figures
The same business has two defensible SDE figures, and the gap between them is where most first-time buyers lose money. This tool computes both at once.
| The optimistic view | The lender-accepted view | |
|---|---|---|
| Who produces it | The broker's listing, and the seller's accountant | The lender's credit analyst, and a quality of earnings review |
| Add-backs | Everything the seller can characterise as discretionary or one-off | Only what survives testing |
| What it is for | Setting an asking price | Deciding what can be lent, and what you should pay |
Neither is dishonest. They answer different questions. The mistake is taking the first and pricing off it.
The add-backs that usually survive, and the ones that do not
- Usually accepted. The owner's compensation and payroll taxes; genuinely one-off legal or professional fees; a documented non-recurring repair; personal expenses run through the business that are clearly identifiable and clearly personal.
- Usually contested. Family payroll where the family member does real work — you will have to replace them. Marketing described as discretionary that is in fact what generates the revenue. "Deferred" maintenance that is really capital expenditure you will meet in year one. Vehicle costs where the vehicle is used in the business.
- Almost never accepted. Add-backs with no documentation behind them, however plausible the story.
The test that resolves most arguments is simple: will this cost exist for you? If it will, it is not an add-back, whatever the listing calls it.
What to do with the two numbers
- Price off the lender-accepted figure, not the optimistic one.
- Use the gap as a diligence list. Every add-back you had to discount is a question to put to the seller, and the answers are informative well beyond the arithmetic.
- Test the debt service on the conservative number with the DSCR calculator. A deal that only works on the optimistic figure does not work.
- Take it to a quality of earnings review if the deal is large enough to warrant one, and remember the earnings a QoE produces are what the lender will underwrite.
See the SDE vs EBITDA guide for which measure belongs on which size of business, and the add-back definition for the term itself.
Frequently asked questions
Why does SDE drop when I switch to the lender-accepted view?
The lender-accepted view discounts the add-backs that 7(a) lenders and QoE analysts challenge most often: “one-time” expenses that quietly recur every year under a different name, and personal expenses the seller cannot document. It applies 50% to the one-time line and 75% to the personal line. The result is closer to the number an SBA lender will actually underwrite. The optimistic view is closer to what a broker’s listing shows. The gap between the two measures how much add-back inflation the listing carries.
What multiple should I use?
There is no single right number. Rule-of-thumb SDE multiples for small owner-operated businesses commonly run 2–4×: lower for high capex, declining revenue, or heavy customer concentration; higher for stable recurring revenue, long customer relationships and clean books. Use the multiple field to sanity-check what an asking price implies, not to set one.
Will an SBA lender use this exact number?
No. SBA 7(a) lenders reconstruct SDE their own way and then apply a debt-service coverage ratio to decide how much debt the cash flow supports. SBA requires at least 1.25 on a first acquisition, with a separate 1:1 test on global cash flow; individual lenders often want more, which is their credit policy rather than an SBA floor. The lender-accepted view gets you closer to their reconstruction, but it is still your estimate, not their underwriting. Treat it as preparation for the lender conversation.
What formula does this use?
SDE = net profit + owner’s total compensation + interest + depreciation and amortisation + non-recurring expenses + personal expenses run through the business − non-operating income. The lender-accepted variant multiplies the non-recurring line by 0.5 and the personal line by 0.75 before adding them. Both formulas are shown on the page and documented on the methodology page.
Is this a valuation?
No. SDE is a normalised earnings figure, not a valuation. The implied price shown is simply SDE multiplied by the multiple you chose. A real valuation weighs revenue trend, customer concentration, contract length, equipment condition, competitive position and a dozen other things this tool does not see.
Is anything stored or sent?
No. The calculator runs entirely in your browser and there is no email gate, no signup and no server. Your numbers never leave your machine. If you use “Copy shareable link”, the figures are encoded into the URL you copy — so share that link only with people you intend to see them.
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.