Business Valuation Calculator

What is SDE (Seller's Discretionary Earnings)?

SDE is the most common valuation method for owner-operated restaurants with less than $1M in annual earnings. It calculates what a new owner-operator would earn by adding back the current owner's salary, benefits, and discretionary expenses to the net profit. For a deeper dive into how SDE drives business value, read our guide to Seller's Discretionary Earnings and business valuations.

SDE = Net Profit + Owner's Salary + Owner Benefits + Depreciation + One-Time Expenses + Personal Expenses

Why SDE Matters for Restaurant Sales

Most restaurant buyers are owner-operators who will work in the business. SDE shows them the total economic benefit they'll receive — including the salary they'll pay themselves. This makes SDE the standard for valuing restaurants where the owner is actively involved. The International Business Brokers Association (IBBA) recognizes SDE as the primary method for small business transactions.

Understanding your SDE is just one part of the equation. There are many factors that determine how much you can sell your business for, from market conditions to buyer demand.

Typical SDE Multiples by Earnings Tier

Multiples vary by earnings level and are influenced by market data tracked by sources like the BizBuySell Insight Report. Here are the typical ranges:

• Under $75K SDE: 1.0x - 2.0x (smaller operations, higher risk)
• $75K - $150K SDE: 1.5x - 2.5x (solid small restaurants)
• $150K - $300K SDE: 2.0x - 3.0x (strong performers)
• $300K - $500K SDE: 2.25x - 3.25x (premium operations)
• $500K - $1M SDE: 2.5x - 3.5x (larger, more desirable)
• Over $1M SDE: 3.0x - 4.0x (consider EBITDA method)

What Affects Your Multiple?

Your financial performance is the critical factor in determining where you land within a given multiple range. Key drivers include:

• Lease Terms: 5+ years remaining with favorable rent (under 8% of sales) commands higher multiples. See our restaurant leasing guide for negotiation strategies.
• Prime Cost: COGS + Labor under 65% indicates efficient operations
• Location: High-traffic, visible locations with strong demographics
• Trends: Growing revenue and profit trends increase buyer confidence
• Owner Involvement: Semi-absentee operations are more valuable than owner-dependent ones
• Licenses: Type 47 liquor licenses add significant value in California. Explore our guide to bars for sale in California for more on license valuations.

When to Use EBITDA Instead

If your restaurant has SDE above $500K-$1M, or operates with professional management (not owner-operated), consider an EBITDA-based valuation. EBITDA removes the owner salary component and is standard for larger operations, multi-unit groups, and institutional buyers. The U.S. Small Business Administration also provides resources for understanding how lenders evaluate these metrics during acquisition financing.

For a broader look at all the methods available, see our overview of fair market value and business valuations.

Thinking About Selling Your Restaurant?

If you're exploring a sale, start with our top tips to successfully sell a restaurant and our comprehensive guide to restaurants for sale. Whether you're in San Diego or anywhere in Southern California, our guide to selling your business in California covers the full process from pricing to closing.

Get a Professional Broker Price Opinion

This calculator provides estimates based on industry standards, but actual valuations depend on many factors including market conditions, buyer demand, and deal structure. Our experienced brokers have sold hundreds of restaurants and can provide a complimentary, confidential broker price opinion. Resources like SCORE also offer free mentoring to help you prepare your financials before a valuation.