General SDE model

June 29, 2023

by a searcher from University of Hartford in Maplewood, NJ, USA

As I begin my search I was hoping someone can validate how to think about target SDE. My understand in simplest terms is $1M in SDE, assume 50% goes towards debt servicing (SBA Loan), the remaining 50% goes towards owners salary, reinvestment, building cash reserves, and taxes.

Let’s say my cost of living is $200k. As a former W2 employee that would mean roughly $280k minus fed, state, health, ssi etc to get to $200k.

Does it work the same way with SDE that I should assume my true requirements are $280k in this model and that would mean only $220k left over for reinvestment, tax, reserves? If so is that realistic/healthy
In terms of what is leftover for the business?

Any feedback on this will be much appreciated. Thank you

Reply by a searcher
from Western Illinois University in St. Louis, MO, USA

This can be a useful model for approximating. feel free to make a copy and use however you need

https://docs.google.com/spreadsheets/d/1gddVFVrhHwg38tnRzb129GKdm6LlUkM4/edit?usp=sharing&ouid=100875197417244069089&rtpof=true&sd=true

Reply by a searcher
from Carleton College in Burlingame, CA, USA

I think this blog post would be a great initial resource for understanding SDE, Buyer's EBITDA, and ultimately Free Cash Flow. I also think it is important to understand that SDE, EBITDA, EBIT, and Free Cash Flow are all important to consider when buying a business. Here is the link: https://bigdealsmallbusiness.substack.com/p/gut-reaction-deal-math

+1 more reply.

Join the discussion