Seller's Discretionary Earnings (SDE) is a financial metric used to evaluate the earnings potential of a business. It represents the total cash flow generated by a business, taking into account the owner's salary, perks, and discretionary expenses that may not be essential for the business's ongoing operations. SDE provides a more comprehensive picture of the business's profitability by factoring in the owner's financial benefits that might not be reflected in traditional financial statements. It is commonly used in business valuation and acquisition processes to estimate the income that a new owner could potentially derive from the business.