SDE is essentially the business’ EBITDA plus the salary of the operator/manager (just one, not multiple salaries, Barnett emphasized). When you sell a small business, the selling price will be determined as a multiple of EBITDA if it’s a larger business or SDE if it’s a smaller one. The larger the business, the larger the multiple because larger businesses are generally less risky. When the EBITDA exceeds $500,000, SDE should become irrelevant. SDE is useful in smaller deals because the buyer needs to quantify the value of their labour as part of the investment they’re making.
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ONE CASHFLOW CALCULATION THAT COULD MAKE OR BREAK YOUR BUSINESS
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