Key Becoming Bankable Element #12 - Owner's Discretionary Earnings

Business Pre-Qualification

Owner’s
Discretionary
Earnings

This is the number that determines what your business is worth to a buyer. Every other element in this program exists to grow it.

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What Is Seller’s Discretionary Earnings?

If your business is valued at five million dollars or less, its sale price will almost certainly be calculated using Seller’s Discretionary Earnings (SDE), also known as Owner’s Discretionary Earnings. SDE gives a potential buyer a clear picture of the total income they can expect to receive if they purchase the business.

How SDE Works

Most business financial statements show a modest net profit — because the owner has been paying themselves a salary, covering personal benefits, and running certain expenses through the business. Those items are all legitimate, but they make the business look less profitable than it really is to a potential buyer.

SDE corrects for this. It starts with the business's net income, then adds back everything the owner received — salary, benefits, payroll taxes, retirement contributions, and personal perks paid by the business. The result is the true total compensation the business generated for its owner.

A buyer looks at that number and asks: "Is this worth paying a multiple for?" The higher and more consistent the SDE, the higher the multiple — and the more attractive the business.

What Gets Added Back

Owner’s SalaryWhat the business paid you to run it
Payroll TaxesThe employer-side taxes paid on your compensation
Health BenefitsMedical, dental, and vision coverage paid by the business
Retirement Benefits401(k) contributions and other retirement funding
Financial PerksVehicle, travel, entertainment, and other owner expenses
=
Your SDE The true income your business produces for its owner — and the number buyers pay a multiple of

The Hard Reality Most Owners Face

Most small business owners work long hours for years, only to discover their business is worth far less than they expected. The average SDE multiple across all industries was 2.5x in 2025 — and businesses with low owner earnings attract the weakest multiples and fewest buyers.

The root cause is the same in almost every case: owners have created a demanding job for themselves rather than a scalable, attractive business. A buyer does not want to purchase a job.

2.5x Average SDE multiple in 2025Based on 9,500+ actual closed transactions; most small businesses sell in the 2–3x range
<$75K Typical owner earningsBusinesses with SDE under $100K attract the lowest multiples (1.2–2.4x) and the smallest buyer pools
65% Of small businesses close within 10 yearsMost never reach a successful sale. Owners close the doors instead of cashing out

The 12-Element Goal

By completing and optimizing all 12 key business success elements covered in this program, the outcome changes dramatically. Here is what the difference looks like in practice.

Typical Outcome

The Unoptimized Business

  • Owner earns less than $75,000 per year in discretionary income
  • Business sells at 1.2 to 2.5 times SDE — the low end of the market
  • Small buyer pool, long time to sell, low closing probability
  • Unattractive to buyers due to owner-dependency
  • Years of effort with limited financial payoff
→
The Goal

The Optimized Business

  • Owner earns at least $100,000 per year in discretionary earnings
  • Business achieves a 4 to 5 times SDE multiple — well above the 2.5x average
  • Sale price of $500,000 or more
  • Attractive to buyers; commands a premium price
  • Strong, documented performance across all 12 elements

What Do Your Owner’s Earnings Look Like Right Now?

The Business Success Assessment shows you exactly where your Owner’s Discretionary Earnings currently stand and provides you with the resources to optimize every element that drives that number higher.

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