Add the boat back in. Your buyer will ask for the receipt.
For owners working out what the company really earns.
Takes about 3 minutes
Add it up
This is math with public numbers in it. It is an estimate, not an offer, not a valuation and not advice. Your accountant or broker will have better inputs than we do. Vaultfish helps you run the process. We are not lawyers and this is not legal advice. If you need counsel who knows this area, we can point you to one. Ask for a referral
Seller discretionary earnings
The add-back waterfall
$406,000
seller discretionary earnings, a year
Of the $196,000 you added back, $39,000 needs paperwork.
Next: see what multiple your industry gets. This number comes along.
See the numbers as a table
| Line | Amount | A buyer will ask for |
|---|---|---|
| Pre-tax net profit | $210,000 | Tax return |
| Owner pay and payroll taxes | $120,000 | Payroll register and W-2 |
| Personal items the company paid | $27,000 | Card statements and receipts |
| One-time costs | $12,000 | Invoices and a note on why |
| Interest, depreciation and amortization | $37,000 | Tax return and asset schedule |
| SDE | $406,000 |
This is math with public numbers in it. It is an estimate, not an offer, not a valuation and not advice.
What this means
- SDE is net profit with the owner's pay and the one-off costs added back.
- Every add-back needs a document. Personal items and one-time costs get questioned most.
- A buyer can drop an add-back they cannot check, so gather the paper first.
What SDE is, in plain words
Your tax return shows what the company earned on paper. A buyer wants to know what the business gives one working owner. The gap is the boat.
That is why the total is the sum of your inputs, and nothing else. A buyer will check each line, so the calculator names the document for every one.
The formula is a sum
- Pre-tax net profit.
- Plus the owner's pay and payroll taxes.
- Plus personal costs the company paid, like a car or a phone.
- Plus one-time costs that will not repeat.
- Plus interest, depreciation and amortization.
Questions people ask
What is SDE?
SDE is seller's discretionary earnings. Start with the company's pre-tax profit. Add back one owner's pay, the personal costs the company covered, one-time costs, and interest, depreciation and amortization. What is left is what one working owner could take out of the business in a year.
What is the difference between SDE and EBITDA?
Both start from profit and add back interest, depreciation and amortization. SDE also adds back the owner's pay and perks, so it fits a company where one owner does the work. EBITDA usually assumes you pay someone a market wage to run it, so it fits larger companies.
What counts as an add-back?
Costs that belong to the owner and not to running the business. Typical ones are the owner's car, phone, travel and insurance, family members on payroll who do no work, and one-time costs like a lawsuit or a move.
Which add-backs do buyers question most?
The personal items and the one-time costs. Both are judgment calls, so a buyer wants card statements, invoices and a note on why the cost will not come back.
Do I add back depreciation when calculating SDE?
Yes. Depreciation, amortization and interest are the non-cash and financing lines in the SDE formula. Your CPA can pull them from the tax return or the profit and loss statement.
What happens after I have my SDE?
Buyers of owner-run companies usually price them as a multiple of SDE. Treat published industry multiples as a rough range and ask a broker or CPA for the real number.
