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seller’s discretionary earnings

Seller’s Discretionary Earnings. What are they?

sellers discretionary earningsWhat are Seller’s Discretionary Earnings (SDE)? The simple explanation is as follows: when you run a business you want to lower your taxable income, as such the owner will legally apply business expenses to their taxable income statement. However, some of these items benefit the owner and thus are discretionary. Items like: the lease of their car, the owners salary, travel and entertainment, etc.

Calculating seller’s discretionary earnings is the first and most crucial step towards setting the selling price of a business or a business valuation. Once you calculate the true owner’s discretionary earnings you apply a sales multiple and you have your price. Sometimes seller’s discretionary earnings is called business re-casted earnings as well. Under either name, it is the basis for sale pricing and of primary interest to buyers. (more…)