Business valuation and SDE calculator
Normalize the owner's earnings, then see what they are worth on a multiple you choose. Every add-back is itemized, and the conservative case is kept separate from the claimed one.
The calculator
Conservative SDE
$350,000
Only the adjustments you marked conservative. This is the figure the cash-flow bridge runs from.
- Claimed SDE, every adjustment applied
- $350,000
- Cash flow available for debt service
- $240,000
- Indicative value range
- —
- Enter the multiple range you want to test. There is no default here, because a multiple this site invented would look like a verified market figure and would not be one.
An earnings multiple describes the business operations. Cash, debt, working-capital adjustments and the deal structure all change what a buyer actually pays and what a seller actually receives.
Your chosen starting figure already excludes this, so it is left out of the totals.
Continue analyzing this deal
A valuation is the start. What matters next is whether the earnings cover the debt that buys them.
A worked example
A business reports $200,000 of net income. The owner adds back $20,000 of interest, $30,000 of depreciation and amortization, and $100,000 of their own compensation. Claimed SDE is $350,000.
Now the bridge. A replacement manager costs $80,000, the business needs $20,000 of maintenance capital spending, and working capital grows by $10,000 a year. Cash taxes are entered as zero deliberately. Cash available for debt service is $240,000 — about a third less than the SDE figure, and the number a coverage ratio is actually measured against.
On a hypothetical 3× to 4× range, that SDE implies $1,050,000 to $1,400,000. Those multiples are illustrative for this example only. This page publishes no default range, because a multiple it invented would read as a market figure and would not be one.
The double-count trap: if the same three add-backs were applied to an EBITDA figure of $250,000 instead, the interest and depreciation would already be excluded. The calculator refuses them and reports $350,000 rather than the $400,000 a naive sum would give.
How the figures are calculated
SDE = base earnings + eligible add-backs − applicable income deductions
An expense is added back only if it reduced the base you chose. Income is taken out only if it increased it. That is why the starting figure decides which adjustments are available at all: EBITDA has already excluded interest, tax, depreciation and amortization, and an already-calculated SDE has also excluded the owner's compensation.
Cash flow for debt service = conservative SDE − replacement management − maintenance capital spending − working capital increase − cash taxes
This bridge is Duneland's scenario convention. It is not a universal lender underwriting definition, and a particular lender will make its own adjustments. What it does is stop an SDE figure being treated as cash it is not.
Indicative value = conservative SDE × your multiple
The multiple has to match the earnings basis it is applied to: an SDE multiple and an EBITDA multiple are not interchangeable. Where earnings are zero or negative, no meaningful value is published, because an earnings multiple is not informative for a business in that position.
What this is not
An earnings multiple describes the business operations. It is not what a seller receives or what a buyer pays: cash, debt, working-capital adjustments at close and the structure of the deal all move that figure, sometimes substantially.
No figure here is verified by anyone. Every add-back is an assumption until it is evidenced, and a lender or a buyer will test each one. The conservative column exists so the difference between what is claimed and what is defensible stays visible.
Illustrative results for planning. Not a financing commitment, financial advice or legal advice.
Duneland Financial is an independent capital advisory firm and does not directly extend credit. Financing is provided by third-party lenders and capital providers and remains subject to their individual underwriting, approval and documentation requirements. Information provided on this website is for informational purposes only and does not constitute a financing commitment, financial advice or legal advice.
What the numbers in this tool mean
This calculator normalizes the earnings. These explain what it is normalizing, which add-backs survive a lender's reading of the records, and why the metric a listing quotes is not the metric a loan is sized on.
- Seller's Discretionary Earnings: From Listing to LenderWhat SDE includes, which add-backs survive a lender's verification, and the three deductions between a listing's SDE and cash flow for debt service.
- SDE vs EBITDA: One Business, Two NumbersSDE and EBITDA differ by one owner's pay. When each applies, how to convert between them, and why a multiple built on one cannot be applied to the other.
- SBA Acquisition Quality of Earnings: The $3 Million Threshold and Buyer PreparationUnderstand acquisition quality of earnings, how it differs from valuation, and what to verify about lender requirements, timing, and report reliance.
Related reading
What a lender asks for, and why the earnings question comes first.
- 10 Ways Sellers Can Make a Business Easier to FinanceTen things a seller can do to make a business financeable, so a buyer's lender approves the deal rather than declining it.
- Acquisition Financing Document Checklist: What Lenders Need and WhyThe documents a lender needs after you sign the LOI, what each one proves, and why the list is shorter than it looks.
- Why Acquisition Lenders Ask for Credit Reports and Personal Financial StatementsWhy an acquisition capital advisor asks for a credit report and a personal financial statement before taking your file to a lender.
Valuation and SDE: common questions
What is seller’s discretionary earnings?
It is the annual cash a single owner-operator takes out of a business, before financing and before tax. Starting from net income, it adds back interest, income tax, depreciation, amortization, one working owner’s compensation and benefits, and any genuinely one-off or non-operating items. The point is to show what the business earns independently of how the current owner chose to pay themselves or finance it.
Why does my starting figure change which add-backs are allowed?
Because each starting figure has already excluded some of them. EBITDA is earnings before interest, taxes, depreciation and amortization, so adding any of those back again counts them twice. An SDE figure someone else calculated has already had the owner’s compensation added back. The calculator refuses those adjustments and says so, rather than quietly inflating the total.
What is the difference between claimed and conservative SDE?
Claimed SDE applies every adjustment you entered. Conservative SDE applies only the ones you marked as defensible. The difference matters because a lender and a buyer will test each add-back and discount whatever is not evidenced. The cash-flow bridge runs from the conservative figure, because that is the one worth planning against. Neither figure is verified by anybody.
Is SDE the same as cash available to service debt?
No, and treating it as such is the most common error in a buyer’s model. SDE is earnings before a replacement manager is paid, before maintenance capital spending, before any growth in working capital, and before cash taxes. Deduct those four and what remains is the cash a lender’s coverage ratio is actually measured against. That bridge is Duneland’s scenario convention, not a universal lender definition.
Why does adding back the owner’s salary need a replacement cost?
Because the work does not stop when the owner leaves. Adding back a $150,000 salary and budgeting nothing to replace it assumes the buyer runs the business for free, which is a decision rather than an arithmetic fact. If a manager has to be hired, that cost belongs in the bridge, and the calculator says so when the add-back appears without one.
Why does this calculator not suggest a multiple for my industry?
Because a multiple this site invented would look like a verified market figure and would not be one. Real multiples come from comparable transaction data, which is licensed, dated, and specific about the earnings basis it applies to. Until Duneland can publish that with its source, the range is yours to enter and the tool shows what it implies.
Have a deal in front of you?
Whether you have a signed LOI, are preparing an offer or are still evaluating the opportunity, send us the basic numbers and where you are in the process. We’ll look at the business, buyer and proposed structure and determine what the financing path may look like.