For our purposes, “adjusted net income” means something different than in a tax (IRS) context; it is a factor in determining how much a business would be worth to new owners. Adjusted net income (also referred to as cash flow or “SDE”, seller’s discretionary earnings, income, or cash) is the amount of money an owner actually receives from their business, a figure that may be substantially different from the net income - also called profit or net earnings - shown on the profit and loss statements and tax returns for the business. The difference results from adjustments (“add-backs”) made to net income shown on the books to demonstrate actual earnings to prospective buyers of the business.
