Do you add back owner's draw for SDE calculation?

I agree with the general theme of responses above that the owner's draw should not be added back to be part of SDE. ^Searchfunder member‌ expresses this well from a P&L perspective: "The proper way to think about SDE is EBITDA plus a normalized owner salary." ^Searchfunder member‌ makes the point in the context of the Balance Sheet. And ^Searchfunder member‌ points out the undesirable consequences of taking the wrong approach from a lender's position.

The short answer is NO. Draws or distributions are taken OUT of profit. The proper way to think about SDE is EBITDA plus a normalized owner salary. For example, if a seller doesn't pay themselves a market rate wage for the industry and position they hold in the business, you need to adjust that salary (up or down) as needed after you've determined what the market rate wage is. As a business appraiser and broker, when I prepare valuations, determining market rate wage for ONE working owner is part of the valuation process.. This serves the purpose of increasing or decreasing SDE (and EBITDA). SDE is the best way to compare Main Street businesses to comps that have sold. Why? Because some of the comp data bases (Bizcomps, ValuSource) provide ONLY SDE. to show earnings. Other data bases such as Peercomps and Deal Stats provide EBITDA (if available). However, EBITDA is often not provided by the selling company but SDE always is (unless the company makes no money). I hope this helps.