Seller's discretionary earnings is a small business's pretax profit plus the owner's salary, personal expenses run through the business, and other one-time or non-operating costs added back in, meant to show what the business generates for a single owner-operator. Buyers of small service businesses value the company as a multiple of SDE far more often than as a multiple of net profit alone.
Why it matters
SDE, not the profit line on your tax return, is usually what a buyer's offer is actually based on.