How A Business With Less Than One Million Dollars in Earnings is Valued

In order to value the business, we need to know the net income and owners salary. This is called SDE, which stands for, Seller’s Discretionary Earnings.

The reason we use SDE for business valuations is that small business owners usually pull a large percentage of their business’s revenue for their salary and living expenses. Small businesses report expenses on their tax returns with an eye toward reducing their tax burden.