For Owners
💼 Small Business Valuation Using Seller’s Discretionary Income (SDI)
🔍 What Is Seller’s Discretionary Income?
Seller’s Discretionary Income (SDI) is sometimes referred to as Seller Discretionary Earnings (SDE) and is the total financial benefit a single owner-operator derives from the business. It includes:
- Net profit (after operating expenses)
- Owner’s salary and perks
- Non-essential or one-time expenses
- Interest, depreciation, and amortization (added back)
This metric reflects the true earning power of the business for a potential buyer who will operate it themselves.
📊 Valuation Formula Using SDI Multiples
Business Value = SDI × Industry Multiple
- SDI: Calculated from financial statements
- Multiple: Varies by industry, business size, growth, risk, and market conditions
🏭 Industry-Specific Multiples
Typical SDI multiples for Louisiana industries:
| Industry | Typical SDI Multiple |
|---|---|
| Restaurants & Cafés | 1.5 – 2.5× |
| Retail (Apparel, Gifts) | 1.3 – 2.0× |
| HVAC & Plumbing Services | 2.5 – 3.5× |
| Auto Repair Shops | 2.0 – 3.0× |
| Professional Services (CPA) | 2.5 – 4.0× |
| E-commerce | 2.0 – 3.5× |
A well-run Shreveport HVAC business with recurring contracts may command a higher multiple than a seasonal boutique in Natchitoches.
💰 Seller Financing vs. Traditional Bank Financing
✅ Seller Financing
Definition: Seller finances part of the purchase price (20–60%) with monthly payments from the buyer.
Benefits:
- Easier qualification for buyers
- Faster closing process
- Potentially higher sale price
- Builds buyer confidence
🏦 Traditional Bank Financing
Definition: Buyer secures a loan from a bank or SBA lender.
Benefits:
- Seller receives full payment upfront
- Lower risk for seller
- SBA guarantees often available for Louisiana businesses
⚖️ Comparison Table
| Feature | Seller Financing | Bank Financing |
|---|---|---|
| Speed | Faster | Slower |
| Buyer Qualification | Flexible | Strict |
| Seller Risk | Higher | Lower |
| Price Negotiation | Often higher | Often lower |
💵 All Cash Offers
Definition: Occasionally a buyer, including our fund, comes along with enough cash to offer an asking price that you find acceptable. This is not the industry norm.
Benefits:
- Allows you to exit the business quickly
- With proper professional planning you can minimize tax implications
🧠 Final Thoughts for Louisiana Owners
- SDI-based valuation is ideal for owner-operated businesses
- Understand your industry’s multiple and document discretionary expenses clearly
- Offering seller financing can expand your ability to demand better terms
- Work with a local business broker or CPA familiar with Louisiana market dynamics
Let us work with you to determine the value of your business and provide you with additional information. We may even make an offer!