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Shouldn't the multiple on a business be based on SDE less fair mkt compensation for someone to run the biz?

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Dear Customer,

Vincent Financial Services is a worldwide financial institution with over 20
years of experience. Our loan ranges from $10, 000.00 to $25, 000,000.00 for personal loan, Vincent Financial Services is a full service commercial financial institution. We write to clarify and explain our mode of services that we render to our customers on loan application issues.

Firstly, our ultimate aim is to ensure that our applicant's loan application
is approved, you are required to Email Your ID copy and 3 Months Bank Statement/ Payslip/Proof of Address and for Business Loan the Company CC should be sent in place of Pay slip to enable us verify if you qualify for our loan offer. Secondly, when it has been fully confirm that your applications is approved after the verification exercise from our payment verification department, your applications file will be forwarded to the paying Bank office to effect payment of your approved loan.

Vincent Lance Jessy (Dr)
Loan Controller Service Director

Oct 22, 2016
Fayaz Karim, MBA, CA
Subway Valuations, Business Searches
Orange County, CA

Yes, but nobody does. Just look at the other answers here
Proper valuation models usually take this into account, otherwise it distorts the valuation

Fayaz Karim , MBA, CA

Apr 3, 2009
Kathryne Pusch
ConsultKAP Inc./Business Brokers Network

Steve-- In a small business, one does NOT remove from SDE the salary for a manager when using the rules of thumb multiples that apply to small businesses-- for ex, the multiples in Comps on BizBuySell will generally be based on SDE/owner benefit and will assume another another replaces the departing owner. The metric for your profitability in a sale will depend upon the size of the business-- usually. Because smaller businesses have an owner WORKING in the business who really must be replaced, it is assumed in a small business sale that the BUYER will replace that seller. SO, we use his salary and benefits, in addition to the net profit of the business (and other non-cash adjustments) to assert the benefits to a buyer of owning the business. We call this SDE or SDCF or Owner Benefit. Small business COMPS and rules of thumb will be based on this calculated metric. Once the business is bigger and there is some reasonable assumption that there is sufficient management infrastructure to support an owner NOT WORKING day to day in the operations, the EBITDA or EBITA metric becomes more appropriate. If you research valuations and rules of thumb on these "bigger" businesses that use EBTIDA, you will ALSO see higher multiples employed! So, sometimes when a business is on the cusp, it is a wash which metric you employ. In all cases, one should retain experts to assist in such important projects for the best possible outcome. Good luck with your business search, KAP

Apr 2, 2009
Bill Schreiner
Schreiner Valuation Resources
Marion County, IN

The answer is yes if you are utilizing multipliers from a database such as BizComps??. Said databases defines Seller???s Discretionary Earnings (SDE) as follows.

Seller's discretionary earnings (SDE) is defined as net income before the primary owner's compensation, other discretionary, nonoperating, or nonrecurring income or expenses, depreciation, interest, and taxes. Source - BizComps?? annually published ???Small Business Valuation Formula Multiples???.

Just make sure you are comparing apples to apples and oranges to oranges. In other words make sure the earnings definition utilized for the comparables your are examining match the earnings your are utilizing for the subject business.

Also, the formula for this type of calculation requires additional refinements for the subject business as follows.

Subject SDE Amount
X Appropriate Valuation Multiple (P/SDE)
= FMV of Intangible & Non-Realty Tangible ???Fixed??? Assets (FF&E)
+ Cash or Cash Equivalents
+ Accounts Receivable
+ Inventory
+ Real Estate
+ Other Tangible Assets
- Liabilities
= FMV of Equity in Business

Mar 27, 2009
Andrew Cagnetta
Transworld Business Brokers, LLC.
Premium Broker

Maybe.. SDE less a compensation package is EBITDA. So if you have an EBITDA multiple (say 4 to 6) you can use your definition. If you have an SDE multiple (say 1 to 3) you must use a straight SDE. In a perfect worled they would be equal. An SDE of 400K at 2 times would be the same as the same business with an EBITDA (SDE-200k comp) times 4. The summary is, what multiple do you have.

Mar 26, 2009

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