SDE Calculator
Seller's Discretionary Earnings is the number most Canadian small businesses are priced on. Enter pre-tax profit, then add back the owner-specific costs a new owner wouldn't inherit — salary, personal benefits, interest, depreciation, amortization and genuine one-time expenses.
SDE calculator
Estimate Seller's Discretionary Earnings by adding legitimate owner add-backs back to pre-tax profit.
Bottom-line profit from the income statement or T2 return.
This is the starting point — earnings before tax, before any owner adjustments. Every add-back below is layered on top of it, so if this number is wrong, everything downstream is wrong.
Ask the seller
- Can I see three years of financial statements and matching T2 returns?
- Are the statements review-engagement, audited, or internally prepared?
- Do the tax returns reconcile to the statements? If not, what explains the gap?
- Is any revenue recognized before it's earned, or any expense deferred?
Verify with: 3 years of financial statements + T2 returns + year-to-date internals
Common add-backs
One working owner's total compensation, including management fees paid to yourself.
The current owner pays themselves whatever suits their tax plan, not market rates. SDE measures what the business earns for one working owner, so that compensation goes back in — but only for one owner.
Ask the seller
- Exactly how much did you take out in salary, dividends, bonuses, and management fees each year?
- How many hours a week do you actually work in the business, and doing what?
- Are any other family members or partners drawing compensation?
- If I hired a manager to do your job, what would that role pay?
Verify with: T4s, T5s, payroll journal, management-fee invoices
Personal vehicle, phone, travel, health or life insurance run through the business.
Personal costs run through the company depress reported profit but disappear when you take over. They only count if they're genuinely discretionary and clearly identified in the books.
Ask the seller
- Which specific expense accounts contain personal spending, and how much per year?
- Are any vehicles on the books personal, and will they stay with the business?
- Are personal travel, meals, or memberships coded to business accounts?
- Can you point to the exact general-ledger lines for each of these?
Verify with: General ledger detail, credit-card statements, vehicle lease agreements
Financing costs tied to the current owner's debt, not the operation itself.
Interest reflects how the current owner financed the business, not how it operates. Your own financing will look different — but note that if debt funds working capital the business genuinely needs, you'll carry a similar cost.
Ask the seller
- What loans, lines of credit, and leases sit on the books, and what are the balances?
- Which debts are being paid off at closing versus assumed by me?
- Is the operating line drawn to fund seasonal working capital?
- Are any loans personally guaranteed or tied to shareholder accounts?
Verify with: Loan agreements, amortization schedules, notes to the financial statements
Non-cash accounting charges. Add back, but budget for real equipment replacement.
D&A is an accounting entry, not cash leaving the bank, so it's added back. The catch: equipment really does wear out. Add it back, then subtract a realistic annual replacement budget before you decide what you can pay.
Ask the seller
- What's the age and condition of the major equipment?
- What did you actually spend on capital purchases in each of the last three years?
- What needs replacing in the next 24 months, and what will it cost?
- Is anything leased rather than owned, and does the lease transfer?
Verify with: Fixed-asset schedule, CCA schedule, capex history, equipment inspection
A lawsuit, a one-off rebrand, a flood repair — costs a new owner won't repeat.
Genuinely unrepeatable costs distort a single year's earnings. This is the most-abused add-back line, so each item needs a date, an amount, and a documented reason it can't recur.
Ask the seller
- Itemize every one-time expense with the date, amount, and reason.
- Has anything similar appeared in any of the other three years?
- Was the legal matter fully resolved, and is there any remaining exposure?
- Was the cost reimbursed by insurance, and is that reimbursement in revenue?
Verify with: Invoices, legal settlement documents, insurance claims, prior-year GLs
Only the portion above what you'd pay an arm's-length employee for the same work.
Family on payroll is common for tax reasons. Only the premium over market pay is an add-back — if the person does real work, you'll have to pay someone to do it after closing.
Ask the seller
- Who on payroll is related to you, and what does each of them actually do?
- How many hours a week do they work?
- What would an arm's-length hire cost for the same role?
- Will they stay on after the sale, and on what terms?
Verify with: Payroll register, T4s, job descriptions, comparable wage data
If the business pays above or below market rent to the owner, adjust to market.
When the owner also owns the building, rent is often set for tax convenience rather than market reality. Normalize it to market rent — the adjustment can be positive or negative.
Ask the seller
- Do you own the premises personally or through a holding company?
- What rent does the business pay, and how was that figure set?
- What's market rent per square foot for comparable space in this area?
- Will I get a lease at closing, what term, and what are the renewal options?
Verify with: Lease agreement, property tax bills, a broker's market-rent comparables
What is not an add-back
- A second working owner's salary — the buyer must replace that labour.
- Recurring repairs or maintenance dressed up as 'one-time'.
- Marketing you cut last year but the business needs to keep revenue.
- Equipment purchases that repeat on a cycle.
- Anything you can't evidence in the financial statements or tax returns.
Exports your full add-back breakdown and the indicative valuation range as a PDF.
This calculator is a general estimate, not financial or legal advice. Verify every add-back against financial statements and tax returns, and confirm with a qualified accountant.
Now that you know your SDE, estimate what your business is worth.
Estimate your business's value →How SDE is calculated
SDE starts with pre-tax net profit and adds back one working owner's compensation, personal benefits run through the business, interest, depreciation and amortization, and genuinely non-recurring expenses. The result approximates the total financial benefit a single owner-operator takes from the business in a year.
Add-backs matter because two identical businesses can report wildly different profit depending on how the owner pays themselves and what personal costs run through the books. Normalizing those out lets a buyer compare businesses fairly — and lets a seller show the real earning power behind a modest bottom line.
Buyers should verify every add-back against three years of financial statements and tax returns. Read our full explainer on what SDE is and how it's calculated, the due diligence checklist, and how to value a business in Canada. Buying? Estimate financing costs with the business loan calculator.
This calculator gives an estimate for planning purposes only and is not financial, tax, or legal advice.
Frequently asked questions
SDE is the total financial benefit one full-time working owner receives from a business in a year. You start with pre-tax net profit and add back the owner's compensation, personal expenses run through the business, interest, depreciation and amortization, and genuinely one-time costs. It's the standard earnings measure for small business sales in Canada.
EBITDA is earnings before interest, taxes, depreciation and amortization — it assumes a paid manager runs the company. SDE adds one working owner's compensation back on top of EBITDA. Businesses under roughly $1M in earnings are usually priced on SDE; larger companies are priced on EBITDA.
One working owner's salary and dividends, owner personal benefits (vehicle, phone, travel, insurance), interest, depreciation and amortization, verifiable one-time expenses, above-market family wages, and a rent adjustment when the owner owns the premises. Each one needs a document behind it — a T4, a general ledger line, an invoice.
A second working owner's salary (you'd have to replace that labour), recurring repairs dressed up as one-time, marketing the business needs to hold revenue, cyclical equipment purchases, and anything you can't trace in the financial statements or tax returns.
Through due diligence: three years of financial statements matched to T2 returns, payroll records, the general ledger detail behind each add-back, and bank statements. Expect any add-back without documentation to be removed from the number a lender or buyer will accept.
Yes. Use "Download my results" to export your full add-back breakdown and indicative valuation range as a PDF, or enter your email to save the worksheet with us so we can follow up.