Franchise Glossary
Seller's Discretionary Earnings (SDE)
What is Seller's Discretionary Earnings (SDE) in franchising?
The key metric used to value owner-operated franchise businesses for resale. SDE equals the business's net income plus the owner's salary and benefits, plus interest, depreciation, amortization, and any one-time or personal expenses the owner ran through the business. It represents the total financial benefit available to a single owner-operator. Franchise resales are typically priced at 2x to 4x SDE, depending on brand strength, location, and growth trajectory. If you are buying an existing franchise rather than building from scratch, SDE is the number that determines whether the asking price is fair.