Owner-operated economics

SDE Normalization

SDE can be useful for smaller owner-operated businesses, but only after discretionary expenses, owner compensation and replacement labor are treated consistently.

Buyer lens

Determine the cash flow available under your actual post-close operating model, not the seller’s lifestyle or staffing model.

Seller lens

Show which expenses truly disappear and which owner responsibilities require replacement compensation.

Why it matters

  • Adding back owner compensation without pricing replacement labor can overstate cash flow.
  • Family payroll and personal expenses require evidence and role analysis.
  • Different buyers can reasonably view the same company through different owner-operator assumptions.

Evidence to reconcile

  • Payroll and owner compensation
  • Detailed general ledger
  • Owner-role map
  • Market replacement-cost assumptions
  • Documented discretionary expenses