The SDE Trap: Why Working Harder Can Lower Your Firm’s Value

A few weeks ago, I spoke with a firm owner — let’s call him John.

He was proud of what he’d built: $1 million in annual revenue and $400,000 in Seller’s Discretionary Earnings (SDE). 

On paper, that looks fantastic.

But when we took a closer look, the picture changed. 

John was reviewing almost every return, handling client calls, fixing staff mistakes, and working nights to keep things running.

If he hired the right people to replace himself — a senior manager, a reviewer, and an admin lead — his “$400K” would drop closer to $250K. 

That $250K is what buyers see as real earnings.

Because when you’re ready to sell, buyers don’t pay for how many hours you work; they pay for what the business produces without you. 

The Difference Between SDE and Real Earnings 

Many firm owners inflate their SDE without realizing it.

They include every possible add-back: personal car expenses, family health insurance, even partial rent. 

But buyers normalize that. They strip out anything personal and add back the true cost of replacing your role.

What they care about is sustainable, transferable earnings. 

If your profit disappears the moment you take a vacation, the business isn’t worth what you think it is. 

That’s why firms that “look” highly profitable often sell for less than 1× revenue, while those with strong teams, recurring clients, and predictable delivery command 1.5×–2× or more. 

A Simple Test 

Ask yourself: 

“If I stepped away for 90 days, what would still happen exactly as expected — and what would stall?” 

Your answer reveals your firm’s dependency. 

High SDE can be deceptive — it’s often a symptom of the owner being too involved.

A truly valuable firm has an SDE that’s sustainable because it’s earned by a system, not a single person. 

Why This Matters 

When your firm runs independently: 

• Buyers see lower risk. 
• You gain freedom. 
• Your multiple rises. 

It’s not about working harder or finding the perfect buyer — it’s about building a machine that performs beautifully without you. 

That’s when your SDE reflects strength, not strain. 

Join me for the Exit Readiness Workshop™ — How to Double Your Firm’s Valuation and Exit on Your Terms. 

Because real value isn’t in the hours you put in — it’s in the business that keeps running when you step away.

Reserve your spot → www.straighttalktransitions.com/exit-readiness-workshop