Glossary

Also referred to as "Owner Discretionary Earnings."

Cash Flow/ Net Operating Income generated from business operations that is available to the business owner (or potential owner). This is often referred to as "disposable" income. 

To arrive at SDE, certain items are added back to the net income. This is often very different for each company. Examples of these "add backs" are:

• Owner's Salary
• Perks: Personal Travel or Personal Vehicle Expense
• Payments for "non-essential" positions
• Leisure Activities, charitable donations, and personal expenses
• One-time expenses that are unlikely to recur after the sale of a business
• In general, expenses that are not essential to running the business

This is the process of calculating the final SDE. 

As stated in the SDE definition, certain expenses are added back while one-time (extraordinary) income is subtracted from cash flow. This is specific to each company that is being analyzed.

This refers to the specific approach utilized in the analysis process. There are several methods that can be used:

• Market Valuation: Based on comparable sales.
• Asset-Based: Includes real estate and/or furniture, fixtures, and equipment (FF&E).
• Income Approach: Also referred to as a "multiple side of SDE".

The analysis method Business Valuation services uses, is the income approach.

Also referred to as "Business Valuation Multipliers". Reconciled earnings (SDE), is multiplied by the multiple factor that is derived from several components:

• Financial Performance
• Diversification
• Owner Dependence
• Competition
• Other Factors