How to Calculate SDE (Seller’s Discretionary Earnings) for Your Restaurant | Calculate SDE Atlanta Restaurant Broker
- Jimmy Carey
- Nov 25
- 7 min read
In today’s competitive Atlanta restaurant market, understanding Seller’s Discretionary Earnings (SDE) is the single most important step in determining your restaurant’s true market value. While many restaurant owners focus on equipment, décor, buildout costs, or the restaurant’s “potential,” buyers, lenders, and professional brokers know that earnings—not assets—tell the real story.
SDE reflects the total financial benefit a full-time owner-operator receives from the business, which makes it the cornerstone of restaurant valuation. Whether you are preparing to sell, evaluating performance, or simply want to understand your restaurant’s true earning power, calculating SDE correctly empowers you to make strategic decisions with confidence. As an Atlanta Restaurant Broker specializing in financial recasting, I help owners calculate SDE accurately so they can understand the true earning power of their business.
If you read my previous article, Restaurant Valuation Atlanta, you already know that earnings drive multiples and multiples drive value. SDE is the engine behind that process — the number buyers trust most.
Why SDE Is the Most Important Number in Restaurant Valuation
When determining the true value of a restaurant, SDE is the metric that matters most — especially for owner-operated restaurants, which make up the majority of the independent food and beverage businesses across Atlanta-Georgia. Buyers are not purchasing equipment, décor, buildout cost, or even the restaurant’s potential — they are purchasing proven, measurable earnings.
SDE reflects the total financial benefit the owner receives, including salary, perks, discretionary expenses, and one-time costs that do not impact future performance. While EBITDA is used for certain multi-unit or fully managed operations, SDE remains the standard for independent restaurants where an owner-operator takes an active role.
Most importantly, SDE is directly tied to valuation multiples — which typically range between 1.9x and 2.6x or more in Atlanta-Georgia, depending on profitability, the owner’s role, lease terms, bookkeeping quality, and overall transferability. This means SDE is not just a number; it is the foundation of your restaurant’s selling price. Because I calculate SDE for Atlanta restaurant owners every day, I can determine whether your business qualifies for a full business sale or an asset sale.
Without accurate SDE, sellers cannot defend their asking price, attract qualified buyers, or position their business correctly in the market. This is why an experienced broker who understands restaurant operations — not just spreadsheets — is essential.
Breaking Down SDE — What’s Included and What’s Not | Calculate SDE Atlanta Restaurant Broker
Many restaurant owners mistakenly believe SDE is the same as net profit. In reality, SDE is far more comprehensive and provides a clearer picture of what the business truly earns for the owner. It adjusts for operational realities, allowing buyers to understand the restaurant’s real financial performance.
Here is a breakdown of what gets added back into SDE — and what does not.
What IS Included in SDE | Calculate SDE Atlanta Restaurant Broker
✔ Net Profit
The bottom-line profit as reported on your tax return or P&L (income statement). This is the starting point of your SDE calculation.
✔ Owner Salary / Guaranteed Payments
Many owners pay themselves a formal salary. Since a buyer will replace this with their own compensation, owner salary is added back.
✔ Owner Perks & Benefits
These are personal or discretionary benefits that flow to the owner:
Auto payments
Gas, mileage
Cell phone
Health insurance
Personal meals
Personal travel
Home office deductions
These increase your true economic benefit.
✔ One-Time or Non-Recurring Expenses
Expenses that will not occur again:
Major repairs
One-time legal fees
Marketing rebranding
Remodeling costs
Unusual maintenance projects
These do not reflect recurring operations.
✔ Depreciation & Amortization
Depreciation relates to physical equipment. Amortization relates to intangible assets like loan fees, franchise fees, or leasehold improvements.
Both are non-cash accounting entries, which reduce taxable income but do not affect actual cash flow. Since buyers evaluate economic benefit, these are added back.
✔ Interest Expense
Interest reflects the seller’s personal financing structure — not the restaurant’s operational performance. Since buyers will finance the business their own way, interest expense is added back.
✔ Other Discretionary Add-Backs
Anything not essential to ongoing operations:
Personal subscriptions
Owner-specific vendor contracts
Professional services not required by a buyer
Correctly identifying add-backs can materially increase SDE.
What Is NOT Included in SDE
SDE is not “everything the owner spent money on.” Certain expenses must remain in the calculation:
❌ Required Labor Costs
Managers, cooks, servers, dishwashers — these cannot be removed.
❌ COGS (Food, Beverage, Supplies)
Every restaurant must purchase food and beverage.
❌ Rent, CAM, Taxes, Insurance
Occupancy expenses are contractual and essential.
❌ Recurring Operational Expenses
Utilities
Software subscriptions
Repairs & maintenance
Marketing
Insurance
These are required for ongoing operations.
❌ Equipment Replacement Costs (CapEx)
Equipment eventually needs replacement. This cost is part of normal operations, not an add-back.
Understanding these distinctions prevents sellers from inflating earnings — a mistake that leads to overpricing and stalled listings.
The SDE Formula — Step-by-Step
Here is the official formula used by restaurant buyers, lenders, and brokers throughout the industry:
**SDE = Net Profit
Owner Salary
Owner Perks
One-Time Expenses
Depreciation
Amortization
Interest Expense
Other Valid Add-Backs**
Let’s break that down in steps.
Step-by-Step SDE Process:
1. Start With Net Profit
From your tax return or P&L.
2. Add Back Owner Salary
Compensation the new owner can replace.
3. Add Back Owner Perks
Personal or discretionary expenses.
4. Add Back One-Time / Non-Recurring Costs
Anything that won’t repeat.
5. Add Back Depreciation & Amortization
Non-cash entries that reduce taxable income only.
6. Add Interest Expense
A seller’s financing decision — not operational.
7. Add Other Discretionary Add-Backs
Non-essential expenses not required by a buyer.
SDE Calculation:
SDE = Net Profit + Owner Salary + Owner Perks + One-Time Expenses + Depreciation + Amortization + Interest Expense + Other Valid Add-Backs
⭐ Sample SDE Calculation
Sample SDE Calculation Used by an Atlanta Restaurant Broker
Net Profit: $120,000
Owner Salary: $70,000
Owner Perks: $18,000
One-Time Expenses: $12,000
Depreciation/Amortization: $20,000
Interest Expense: $6,000
Other Add-Backs: $4,000
Estimated SDE = $250,000
If the business is strong, clean, and transferable, a typical Atlanta multiple of 2.3x results in:
$250,000 × 2.3 = $575,000
Real-World Examples From the Atlanta Market
SDE becomes real when owners can see how it impacts valuation in actual transactions.
-Profitable Restaurant — SDE Multiple: 2.3x
A highly successful pizzeria operating for over a decade, with management in place and very little owner involvement, sold for a 2.3x or more multiple. Why?
Strong SDE
Clean records
Transferable operations
Tenured staff
Desirable location
Healthy lease terms
This is SDE at its best: transparent, favorable, and marketable.
-Asset Sale — Low or Negative SDE
Another restaurant you represented had low earnings but:
A fantastic location
A strong, under-market lease
Well-maintained kitchen equipment
A complete FF&E package
Operational infrastructure already in place
You guided the seller on setting a justifiable and attractive asset-sale price that allowed them to:
Recover part of their investment
Exit the business faster
Remove their personal lease guarantee
This proves that even when SDE is low, strategy + market expertise = results.
How Brokers Recast Financials Correctly
Recasting is the process of adjusting financial statements to reflect true earning power.Most owners — and certainly most accountants — do not do this correctly.
Professional restaurant brokers recast by:
Identifying discretionary expenses
Adjusting owner salary
Normalizing labor
Correcting irregular COGS patterns
Removing one-time expenses
Adding back depreciation, amortization, and interest
Cleaning up inconsistencies in tax returns and P&Ls
This is where expertise makes a measurable difference. A proper recast often increases SDE — and value — significantly.
How SDE Impacts Restaurant Valuation
SDE directly determines the restaurant’s valuation multiple. In Atlanta, multiples typically fall between 1.9x and 2.6x or more, depending on:
Owner involvement
Transferability
Lease terms
Profitability
Condition of FF&E
Restaurant age
Market trends
Clean books
Industry performance
-Higher SDE + strong operational structure = higher multiple.
-Low SDE or messy books = lower multiple, often leading to an asset-sale valuation instead.
When SDE Is Low — What Owners Should Do Next
Low SDE doesn’t mean a restaurant cannot sell.Owners simply need a different strategy:
Consider an asset sale
Improve financial organization
Fix COGS and labor issues
Clean and modernize systems
Improve bookkeeping
Prepare for a lease assignment
Work with a broker early to structure the path
Low SDE is not a dead end — it just changes the approach.
Working With Atlanta’s Premier Restaurant Broker
As a former Restaurateur, professional Chef, and multi-unit Restaurant Owner with 37+ years of Restaurant and F&B Industry experience, I bring operational understanding that most Brokers do not. Restaurant owners prefer working with someone who “speaks their language” and understands the reality behind the numbers & business.
My professional credentials reinforce this:
IBBA Profile: https://www.ibba.org/broker-profile/georgia/atlanta/jimmy-carey/
GABB Profile: https://gabb.org/brokers/jimmy-carey/
Business Reference Guide Source Data: https://businessreferenceguide.com/about-our-data
And my digital presence reflects strong engagement with Atlanta’s food and beverage community:
YouTube: https://www.youtube.com/@JimmyCarey-RestaurantBroker
Google Maps Profile: https://maps.app.goo.gl/GED75eh81tU3CNKLA
Whether you're selling a profitable restaurant or preparing for an asset sale, accurate SDE drives strategy — and strategy drives results.
Frequently Asked Questions (FAQ)
1. What is SDE?
It’s the total financial benefit a restaurant owner receives.
2. Why does SDE matter more than net profit?
Net profit does not include owner salary, perks, or add-backs.
3. Do buyers rely on SDE?
Yes — it is the #1 metric for valuation.
4. What if my books are messy?
A broker recasts your financials to clarify true earnings.
5. What if my SDE is negative?
You may qualify for an asset sale, which still has value.
6. Does SDE apply to franchises?
Yes — for owner-operated franchise units.
7. What’s the difference between SDE and EBITDA?
EBITDA removes owner-specific adjustments; SDE includes them.
8. Can I calculate SDE myself?
You can estimate it — but a professional recast is recommended.
Ready to Understand Your True Restaurant Value?
Whether you run a profitable restaurant or one facing challenges, understanding SDE gives you control over your future. This one number guides pricing, negotiations, buyer interest, deal structure, and ultimately — your ability to exit on your terms.
If you're thinking about selling in the next 3–12 months, now is the time to understand your SDE and prepare strategically.
If you're considering selling or want to understand what your restaurant is worth, I can provide a confidential, broker opinion of value and recast of your financials.
Atlanta’s and Georgia Premier Restaurant Broker
📞 305-788-8207
📞 678-320-4800
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