Seller’s Discretionary Earnings (SDE)
Why does Seller’s Discretionary Earnings (SDE) matter in a Canadian SME sale?
In a Canadian SME sale, SDE is often the earnings figure a buyer starts from when sizing up a small, owner-operated business. If your add-backs are clean, documented, and defensible, the earnings base holds up under scrutiny. If they are vague or unsupported, a buyer or lender will strip them out, and the number a range is built on falls. Add-back quality, not just the headline total, is what survives diligence.
How does Seller’s Discretionary Earnings (SDE) affect your marketable range?
Because a marketable range is built on normalized earnings, the SDE figure and the strength of its add-backs move the range directly. Defensible add-backs support a higher, more credible earnings base and a steadier range. Weak add-backs introduce risk, which tends to narrow the supportable range or invite a buyer to discount it. This is why owner-confirmed inputs matter more than an optimistic spreadsheet.
A simple SDE example
Suppose a business reports $120,000 in net profit, pays its owner a $90,000 salary, and absorbed a one-time $20,000 legal cost this year. Adding those back gives an illustrative SDE of $230,000. This is only arithmetic to show how add-backs work. It is not a benchmark, a market figure, or a claim about what any business is worth.
Keep exploring
See how much your business is worth in Canada, try the business valuation calculator, or read about the Marketable Range Report.
Related terms: EBITDA Multiple, Owner Dependency.
Frequently asked questions
Is SDE the same as net profit?
No. SDE starts from net profit and adds back the owner’s salary, discretionary spending, one-time costs, and defensible non-recurring items, so it reflects the total financial benefit to one working owner rather than accounting profit alone.
Why do add-backs matter so much in SDE?
Because a buyer credits only the add-backs they can verify and defend. Undocumented or aggressive add-backs tend to be removed during diligence, which lowers the earnings a marketable range is built on.
ProvenX provides an indicative marketable range based on owner-confirmed inputs and Canadian benchmark assumptions. It is not a formal valuation, appraisal, or business brokerage service, and it is not legal, tax, accounting, or investment advice. Any example figures are illustrative arithmetic, not benchmark claims or guarantees of price. Speak with a qualified professional before making decisions about selling your business.