SDE for 2 co-owners?

November 12, 2024

by an investor from Yale University in Miami, FL, USA

SDE is commonly used for businesses that are <$1M in EBITDA, but typically SDE covers salary of owner/operator. I'm looking at an acqui-hire where there two business owners/operators. Should I include both salaries as part of SDE? Or consider 1 as FTE and look at SDE with just 1 owner?

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Reply by a searcher
from University of California, Berkeley in Laguna Niguel, CA, USA

Hi Marcus - You want to model out what your SDE would be post close and use that in your modeling and to determine at what price to make an offer. For example, if you are going to fill the role of both previous owners yourself, then you would use current SDE for both owners. Alternatively, if you are going to fill the role of one of the current owners and hire for the 2nd owner’s role then you would take the current SDE for both owners and subtract out market-rate compensation for the second owner and that would be an estimate of your post-close SDE

Reply by a professional
from Bentley College in Miami, FL, USA

When calculating SDE for a two-owner business, it's generally accepted to add back the salary for a single owner/operator role, as this reflects the income a buyer could potentially replace with their own salary. However, in an acqui-hire situation, you might consider whether both owners bring distinct roles that would require replacement post-acquisition, which could justify adding back both salaries if they’re integral to operations.

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