Seller's Discretionary Earnings: The Number That Drives Your Sale Price

If you've started exploring a sale, you've probably run across the term Seller's Discretionary Earnings — SDE for short.

It's the most important number in a small business sale, and also the most misunderstood. Here's how it actually works.

What SDE Is

SDE starts with your net income — the bottom line on your P&L — and adds back the things a new owner wouldn't necessarily incur. The most common addbacks:

• Your salary as the owner-operator
• Personal expenses running through the business (car, phone, meals, travel a new owner wouldn't replicate)
• One-time items like a major repair or legal settlement, and non-cash charges like depreciation

The goal is to capture what the business would actually earn in someone else's hands.

The Math Behind Your Sale Price

Once you have an SDE number, buyers apply a multiple. For a well-run wedding venue, market multiples typically land somewhere between 2.0x and 4.0x, depending on factors we'll get to in a moment.

The rough math: $300,000 of SDE at a 3.0x multiple is a $900,000 business. $500,000 at 3.5x is $1.75M.

This is also where asking prices and offers diverge. A seller lists using one SDE number and an optimistic multiple; a buyer underwrites a different SDE number and a more conservative multiple. Most of the gap in any negotiation lives inside those two inputs.

What Moves the Multiple Up or Down

Higher multiples go to venues with tenured staff, operations that don't depend on the owner showing up every day, revenue diversified across weddings, corporate, and social events, a strong online reputation, and clean financials a buyer can actually follow.

Lower multiples follow concentration risk, key-person dependency, financials that are hard to parse, choppy recent performance, or a looming capital need the buyer would have to fund.

One more nuance specific to venues: the multiple applies to the business. If you own the property too, the real estate is valued separately — conflating the two is one of the most common sources of confusion in venue sales.

What This Means for You

The most valuable thing you can do before a sale — ideally well before you ever list — is figure out what your true SDE actually is.

A lot of owner-operated venues look less profitable than they are, because the owner's lifestyle runs through the business in ways a standard P&L doesn't flag. A good accountant can help you reconstruct the number honestly.

The stakes are concrete: a $50,000 increase in documented SDE, at a 3.0x multiple, is $150,000 of sale price. Getting SDE right matters to both sides of the table.

Want a second set of eyes on what your venue might be worth? Reach out — confidential, no obligation, and we share our math.