Biz4DealRUKnowledge center
SDE, cash flow, market evidence, risk, and the difference between an asking price and value.
Information current as of August 1, 2026
Many owner-operated businesses are initially analyzed using normalized seller’s discretionary earnings, market evidence, and a multiple reflecting risk and transferability. Larger companies may be evaluated using EBITDA or other methods. Industry, growth, customer concentration, management depth, assets, working capital, lease terms, and financing conditions can materially change the result.
SDE is a normalized earnings measure often used for owner-operated businesses. It typically starts with reported profit and evaluates items such as owner compensation, interest, depreciation, and supported discretionary or nonrecurring expenses. Every adjustment must be documented and defensible; adding an expense back does not automatically make it acceptable to a buyer or lender.
No. An asking price is the seller’s marketing position. A broker opinion, formal valuation, lender analysis, buyer underwriting, and negotiated purchase price serve different purposes and can reach different conclusions. Buyers should evaluate the earnings, assets, risks, financing structure, and transaction terms rather than relying only on the advertised price.
The valuation must recognize the labor required to replace the owner’s production work. If the owner cooks in the restaurant, performs service calls, or fills another operating role, a buyer and lender may normalize cash flow by deducting a market wage, payroll taxes, and related costs for a replacement employee. The owner should track actual duties and hours and, where practical, install and document a replacement before the sale so the business demonstrates transferable earnings rather than income dependent on unpaid owner labor.
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