FAQs About SDE Valuation

Is SDE the exact amount a buyer will pay for a business?

Calculating SDE is just one part of determining the value of a business. Most people will apply a multiple to the SDE to find a company’s value. The multiple depends on many factors, such as market trends and the company’s size.

What’s the difference between SDE and EBITDA?

EBITDA is more commonly used when valuing larger companies. It also accounts for the cost of hiring a replacement for the owner.

How do I improve my SDE?

There are two ways to increase SDE: boost your company’s net earnings or reduce its liabilities. If you can earn more or pay down debt, SDE will rise.

What happens if there’s a difference of opinion over SDE between buyers and sellers?

Two people calculating SDE for the same company might come up with different valuations for a company. This can often happen if the value of branding or the owner’s reputation and skills come into play.

The two parties will need to negotiate and come to a consensus about the business’s value if they want to move forward with the transaction. 

Is SDE the same as cash flow?

SDE is slightly different from a company’s cash flow because it includes various add backs, such as discretionary expenses.

Which year’s SDE should my business valuation be based on?

You should use the most recent available data to determine the SDE for a company. That will provide the most up-to-date valuation for your company.

How do I get help calculating SDE?

If you’re struggling to determine your business’s value or SDE, you can use a worksheet online or hire a business valuation service to assist you.

About the Author

TJ Porter

TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

More about me

Related Articles

Show More