Seller's discretionary earnings

Seller's discretionary earnings, or SDE, is a step beyond EBITDA that adds back the owner's full compensation and benefits on top of the usual add-backs, to show the total financial benefit one owner-operator gets from the practice: salary, profit distributions, personal expenses run through the business, and any other discretionary spending, all combined into one number. It is most commonly used for smaller, single-owner practices being valued for a buyer who intends to work full-time as the new owner-dentist themselves.

The distinction between SDE and adjusted EBITDA matters because they answer slightly different questions. Adjusted EBITDA assumes the owner's clinical production is replaced by a market-rate associate, which suits a buyer purchasing the practice as an investment or an addition to a group. SDE assumes the buyer is stepping directly into the owner's chair and keeping that full income stream for themselves, which changes both the appropriate valuation method and the multiple that should be applied.

Ask which framework a broker or seller is using before comparing numbers across different listings, since SDE and adjusted EBITDA for the identical practice can differ substantially, and confusing the two leads to comparing genuinely different figures as if they were the same.