Seller's Discretionary Earnings (SDE)
The standard profit metric used to value small, owner-operated businesses — including junk removal companies.
Last updated: Feb 2026
SDE is the total financial benefit a single owner-operator extracts from a business in one year, including salary, perks, and non-cash expenses.
Formula
SDE = Net Income + Owner's Salary + Owner's Benefits + Interest + Depreciation + Amortization + One-Time / Discretionary Expenses
Used For
Financials
Add-Backs
SDE
$340,000
Annual owner benefit
Definition Breakdown
What It Means
The total cash benefit flowing to a single full-time owner-operator before taxes, interest, depreciation, and discretionary spending
Includes the owner's salary, benefits, and any personal expenses run through the business
Normalizes one-time costs (equipment purchases, legal fees, buildout) that won't recur under new ownership
Represents the true earning power of the business if you're the one running it day-to-day
When It's Used
Pricing an acquisition — buyers apply a multiple (typically 2–4×) to SDE to determine purchase price
Comparing businesses of different sizes — SDE normalizes owner compensation differences
Estimating what an owner-operator will actually take home from the business
What It Excludes
Revenue from non-recurring windfalls (insurance payouts, PPP loans, asset sales)
Income that requires hiring a replacement for the owner (that's where EBITDA is used instead)
Capital expenditure needed to sustain operations — CapEx is separate from SDE
Why SDE Matters for Operators
If you're buying or selling a junk removal business, SDE is the number both sides negotiate from — not revenue, not net income
A 2-truck operation doing $500K revenue with $180K SDE is worth roughly $360K–$720K (at 2–4× multiple) — that's the range you'll see in most deals
Knowing your SDE lets you benchmark against industry data: the median junk removal SDE margin is 25–35% of revenue
Key Takeaway
SDE is the single most important number in any small business acquisition. If you can't calculate it accurately, you can't price a deal.
Common SDE Add-Backs
The categories of expenses that get added back to net income when calculating SDE.
Owner Compensation
checkOwner's salary / draws
checkOwner's payroll taxes
checkOwner's retirement contributions (SEP, Solo 401k)
warningOnly add back one owner's compensation. If both spouses are on payroll, only one gets added back — the other is a real operating cost.
Owner Benefits & Perks
checkHealth / dental / vision insurance (owner only)
checkPersonal vehicle expenses run through the business
checkCell phone, home office, travel (personal portion)
warningBe honest about what's truly personal vs. business. Buyers will scrutinize every line item.
One-Time Expenses
checkEquipment purchases that won't recur annually
checkLegal fees for entity formation or a one-time dispute
checkBuildout / renovation costs for a new facility
warningIf the 'one-time' expense has happened 3 years in a row, it's not one-time. Buyers catch this immediately.
Non-Cash Expenses
checkDepreciation on trucks and equipment
checkAmortization of intangible assets
checkStock-based compensation (rare in small biz)
warningDepreciation is a legitimate add-back, but don't ignore that trucks actually wear out — CapEx is real even if depreciation is non-cash.
Interest & Taxes
checkInterest on business loans
checkFederal and state income taxes (pass-through entities)
checkProperty taxes on owner's personal assets booked to the business
warningInterest is added back because the buyer's financing structure will differ. But if the business requires debt to operate (truck loans), note that to buyers.
Discretionary Spending
checkCharitable donations made through the business
checkMeals and entertainment beyond what's operationally necessary
checkSponsorships, club memberships, non-essential subscriptions
warningDon't add back marketing spend — that's an operating cost. Only add back spending that a new owner could eliminate without hurting revenue.
Common Mistakes & Red Flags
Errors that overstate SDE and kill deals.
Double-counting add-backs — adding back depreciation AND the full cost of a truck purchase in the same year
Claiming expenses are 'one-time' when they recur annually (truck replacements, insurance premium spikes)
Using an unrealistic owner replacement cost — if you pay yourself $40K but the market rate is $80K, SDE is overstated
Ignoring capital expenditure needs — SDE looks great until the buyer realizes they need $60K in truck replacements year one
Adding back expenses that directly drive revenue (marketing, key employee bonuses) — removing these would hurt the business
Mixing up SDE and EBITDA — SDE includes owner compensation, EBITDA does not. Using the wrong one changes the valuation by 30–50%
Want to value a junk removal business the right way?
Our valuation guide walks you through SDE calculation, comparable multiples, and deal structure — built for junk removal operators.
SDE: FAQ
Related Resources
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