SDE — the number that determines a business's price in Florida

Every file brings the same question: "So what's this business actually worth?"

The honest answer is: somewhere between 1.5 and 3.5 times its SDE. Which tells you nothing yet — and that's normal. SDE is an American accounting concept with no direct French equivalent. Yet it's what sets the price on nearly every small and mid-size business transaction in Florida.

A few accounting basics first

The American income statement is built around a handful of aggregates you'll find in every financial document a seller hands you:

• Net Sales — revenue net of sales tax, tips, and discounts.
• COGS (Cost of Goods Sold) — the cost of the goods sold.
• Gross Margin — Net Sales minus COGS.
• OPEX — ongoing operating expenses: rent, utilities, insurance, marketing. Excludes interest, provisions, and depreciation.
• EBITDA — operating margin before interest, depreciation, and amortization. The key figure, roughly halfway between cash flow and operating profit.

From EBITDA, you subtract interest, depreciation, and other adjustments to get EBIT — pre-tax income. For most small American businesses, structured as a pass-through LLC, this is the amount that flows onto the owners' personal tax return. The LLC itself pays no tax.

SDE — what the owner actually captured

SDE (Seller's Discretionary Earnings) goes further than EBITDA. It represents everything the outgoing owner actually captured during the fiscal year — whether as direct compensation or as personal benefits run through the business as expenses.

In practice, SDE is calculated as:

• EBITDA
• + Owner salary and bonuses
• + Discretionary expenses: company car, personal health insurance, personal items billed to the business, private subscriptions…
• − One-time, non-recurring expenses: a one-off system overhaul, legal fees from an isolated dispute…
• = SDE

Why start from EBITDA rather than EBIT? Because when you buy a business, you set up a new LLC that takes over the goodwill and assets — but not the existing debt or depreciation schedule. Those items shouldn't weigh on your valuation.

A concrete example

Take a hair salon in Tampa. Its annual income statement shows:

• Net Sales: $420,000
• COGS: $85,000
• Gross Margin: $335,000
• OPEX: $210,000
• EBITDA: $125,000

The owner pays themselves a $65,000 salary, runs their car through the business ($8,400/yr), and their health insurance ($6,000/yr). The year saw a supplier dispute — $4,500 in one-time legal fees.

SDE = 125,000 + 65,000 + 8,400 + 6,000 − 4,500 = $199,900

That's the real return on the business. Not the $125,000 shown as EBITDA.

From SDE to price: the multiples

For most transactions, a business sells for between 1.5x and 3.5x SDE. That's a wide range — and it's where negotiation happens.

The multiple depends on several factors:

1. Tangible assets — equipment, furniture, fixtures included in the deal.
2. Intangible assets — brand, customer loyalty, years in business, unregistered patents, licenses, or know-how.
3. Lease quality — price per square foot, remaining term, renewal terms.
4. Location — a premium address in an established neighborhood pulls the multiple up.
5. Reputation and recognition — online reviews, but also industry awards, peer recognition, listing in a respected guide. Reputation built over time has a value that can't be improvised.
6. Network membership — a franchise or exclusive network that drives customers or margins justifies a premium.

In the Tampa salon example, a 2.2x multiple would price it at $439,800. A location near lease end, no brand of its own, few online reviews: closer to 1.6x, or $319,840. Same SDE, a $120,000 gap — purely from qualitative factors.

What SDE doesn't tell you

SDE is a mirror of the past. It assumes performance will continue unchanged under your management — which is never guaranteed. The seller leaves, and sometimes their network leaves with them. Some customers are loyal to them, not to the storefront.

That's why reading SDE doesn't replace serious due diligence: checking that the numbers hold up across several fiscal years, understanding where revenue actually comes from, identifying concentration risk. Good advisors — broker, attorney, CPA — exist to do this critical reading before you sign anything.