Seller Discretionary Earnings
Also known as: SDE
Profit with the owner's own compensation and discretionary costs added back, used as the earnings base for valuing an owner-operated property.
Seller discretionary earnings is net profit plus the owner's salary and any discretionary or one-off expenses that a new owner would not necessarily carry. It exists because in an owner-operated property the line between business cost and owner compensation is arbitrary, and comparing two properties needs a common base.
The add-backs are where the disagreement happens, and they are where a valuation gets inflated quietly. An expense is only a legitimate add-back if the business genuinely runs without it. Content production that the previous owner did personally is not a discretionary cost. It is a cost that has not been priced yet.