SDE Recast Tool
Recast your P&L into Seller's Discretionary Earnings, and see which add-backs a buyer will actually underwrite.
Example scenario—not a forecast or verified benchmark. Enable JavaScript to edit inputs, view charts, save locally and export your analysis.
Example inputs
- Annual revenue
- 2,500,000
- Net income before taxes (from your P&L)
- 180,000
- One owner's salary + payroll taxes
- 120,000
- Interest expense
- 18,000
- Depreciation & amortization
- 40,000
- Owner perks (health insurance, auto, phone, retirement)
- 25,000
- One-time / non-recurring expenses
- 35,000
- Personal expenses run through the business
- 15,000
- Family payroll above market rate (or non-working family)
- 20,000
- How well can you document the discretionary add-backs?
- partial
- Market salary to replace you with a general manager
- 95,000
- SDE multiple for valuing each add-back
- 2.8
Example results
Your recast SDE is $453K, but a buyer will likely underwrite about $420K; tightening documentation protects up to $92K of price.
- Recast SDE (your claim)
- $453,000
- SDE a buyer will likely underwrite
- $420,250
- Add-backs at risk
- $32,750
- Price at risk at your multiple
- $91,700
- Adjusted EBITDA (after GM salary)
- $325,250
- Underwritable SDE margin
- 16.8%
- Discretionary add-backs as share of SDE
- 21%
- Discretionary add-backs claimed
- $95,000
What stands out
$33K of add-backs are likely to be challenged
At 2.8x, that is about $92K of asking price a buyer's quality-of-earnings review could strip out.
Weakest add-back: one-time ($35,000)
Only about 55% is likely to be credited at your documentation level.
Underwritable SDE margin of 16.8%
A healthy recast margin supports financing and a stronger multiple.
Next actions
- Build an add-back binder: for each of the $95K in discretionary items, attach GL detail, invoices, and a one-line explanation.
- Stop running $15K of personal spend through the business for the 12-24 months before a sale. Clean earnings beat add-backs.
- Commission a sell-side quality-of-earnings review before going to market so the buyer's accountants find no surprises.
- Document what a general manager would cost so buyers can see the business without you.
Model assumptions & limitations
- SDE adds back one working owner's full compensation, interest, D&A, and documented discretionary or non-recurring expenses.
- Rule of thumb: at "partial" documentation, buyers credit about 80% of perks, 55% of one-time items, 60% of personal expenses, and 70% of excess family payroll. Actual acceptance varies by buyer and lender.
- Buyers usually also deduct normal maintenance capital expenditure, which this tool does not.
- Adjusted EBITDA = underwritable SDE minus the market salary you entered for a replacement manager.