If you are a Canadian business owner considering selling your company or simply trying to get a better understanding of your profitability, seller’s discretionary earnings—often referred to as SDE—can give you the insight you need. This figure is not the same as profit. It represents the total cash benefit that you, the owner, receive from the business.

SDE includes the company’s net profit and also adds back certain expenses that are specific to your personal benefits or one-time costs. For owner-operated businesses across Canada, this measurement is often more accurate than traditional profit and loss statements or EBITDA.

What SDE Measures

Seller’s discretionary earnings reflect the actual earnings available to the owner after accounting for personal salary, perks, non-essential expenses, and other adjustments. These include:

• Net income

• Owner’s compensation and benefits

• Personal or discretionary expenses

• One-time or nonrecurring costs

• Interest

• Depreciation

• Amortization

Why It Matters in Canada

Many small and medium-sized businesses in Canada are run by the owner or a family member. Because of this, SDE offers a more realistic view of the company’s earning potential. It helps justify your asking price when you are preparing to sell and allows buyers to understand what they would take home if they operated the business.

SDE is also helpful for understanding where you might improve margins. For example, eliminating unnecessary discretionary expenses or boosting revenue can directly improve your SDE and increase your company’s market value.

Example Calculation

Imagine a local owner-operated café. The business shows a net profit of eighty thousand dollars. However, when adding back the owner’s sixty thousand dollar salary, their vehicle allowance, and a few one-time marketing costs, the SDE might rise to one hundred fifty thousand dollars. That is the number a buyer would care about.

Tips for Improving SDE

To improve SDE and attract buyers:

• Reduce unnecessary costs

• Increase sales through new services or higher pricing

• Reevaluate recurring contracts and supplier agreements

• Track and document owner perks clearly

Final Thoughts

Whether you are preparing to sell or simply want to understand your true business earnings, seller’s discretionary earnings is one of the most useful metrics for Canadian entrepreneurs. A proper SDE calculation can strengthen your negotiation position, help buyers see your business value, and lead to a smoother transaction.