Value of Businesses Based on Seller Discretionary Earnings

Jerrod Smith, CEO of AN Global San Antonio, goes over Seller Discretionary Earnings (SDE) and its function in determining a business's value.

Chris:

The number one thing is if you own a business and there's any kind of liability or injury or damage or anything like that. They're going out of the business first and foremost. And, if you have not set aside the money to cover that, it turns around and bites you.

Marc:

So Jerrod, so you mentioned coffee shops. Is it like real big now? What else is big now?

Jerrod:

I guess, maybe automotive, too. Like the mechanical automotive industry.

Marc:

Or a franchise?

Jerrod:

Either way, the biggest thing is making sure that they have a good, what we call an SDE or Seller's Discretionary Earnings. And if they have good seller discretionary earnings, then you're gonna get interest from buyers.

Because the stronger that is, the stronger they're gonna believe, in the safety net the company has. And so that's where that comes in. So companies that are typically either not doing well or. just getting started, that doesn't necessarily have that much time to prove that number. Those are the ones that struggle the most.

Heather:

Are we seeing mostly, or are you saying, it's mostly businesses that are struggling and they wanna sell to get out?

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