SDE vs EBITDA

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1,000+ Businesses Sold – Real-world experience backed by proven results

1. 25+ Years of Deal-Making – We know how to position and defend SDE for top-dollar exits

2. Built, Scaled, and Sold Our Own Companies – We sit on your side of the table

3. Hands-On, Confidential Process – No templates. No guesswork. Just strategy that works

4. Nationwide Buyer Network – From private equity to individual operators, we bring serious buyers to the table

5. Mission-Driven, Owner-Focused – You’ve built the business—we help you protect the legacy and get paid for it

 

SDE vs EBITDA: Understanding the Meaning of SDE for Small Business Sales

If you’re asking “What’s my business worth?” or “How do buyers evaluate a business like mine?”—this one’s for you.

As a business owner, your valuation hinges on the financial story you tell. That story needs the right headline. For small, owner-operated companies, that headline isn’t EBITDA—it’s SDE.

Let’s break down the difference between SDE (Seller’s Discretionary Earnings) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)—and why it matters when you’re selling a small business.

What Is SDE (Seller’s Discretionary Earnings)?

SDE represents the total financial benefit a full-time owner-operator receives from the business. It’s essentially the business’s true cash flow for a single owner who is active in operations.

SDE includes:

• Net profit

• Owner’s salary

• Owner’s perks (like personal vehicle expenses)

• One-time or non-recurring costs

• Interest, taxes, depreciation, and amortization (added back)

Think of SDE as:
"What would I make if I owned and operated this business myself?"

That’s why it’s the gold standard for valuing small, privately-held companies—especially those generating less than $5 million in revenue.

What Is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a more standardized financial metric used in larger companies, especially in the middle market or public companies.

EBITDA is used to:

• Normalize profitability across businesses

• Evaluate companies with multiple owners or professional management

• Remove the influence of capital structure and non-cash accounting

Unlike SDE, EBITDA does not include owner’s salary or discretionary expenses. It’s more clinical—and less reflective of owner benefit in small businesses.

SDE vs EBITDA: Key Differences at a Glance

FeatureSDEEBITDABest ForSmall, owner-operated businessesLarger, professionally managed companiesIncludes Owner’s Salary?Yes (added back)NoIncludes Discretionary Expenses?YesNoReflects True Owner Benefit?YesNot directlyCommon UseBusiness sales under $5MM&A deals over $5M, institutional investors

Why SDE Is the Right Tool for Small Business Sales

When selling a small business, buyers want to know how much they can realistically make if they step in and run the business themselves.

That’s what SDE provides—it shows the total earnings power available to an owner-operator.

At Sailfish Equity Advisors, we’ve guided over 1,000 successful business sales using this principle:
Get the SDE right, and you position the business to sell for top dollar.

We start every valuation with an SDE analysis because it allows us to:

• Recast the financials to reflect true profitability

• Defend value with clear add-backs and documentation

• Create a compelling narrative that attracts serious buyers

For Sellers: How SDE Impacts Your Exit Strategy

If you're planning to sell your business in the next 12–36 months, SDE should be your core financial focus.

Here’s what you need to do:

• Track all discretionary expenses: Meals, travel, auto, phone—anything that wouldn’t carry over to a buyer.

• Document non-recurring expenses: Legal disputes, one-time marketing campaigns, equipment upgrades.

• Avoid aggressive write-offs right before listing: These might save on taxes but could reduce your SDE and ultimately your valuation.

• Clean your books: Buyers and lenders need confidence. Sloppy financials destroy trust and suppress offers.

For Buyers: Why You Should Understand SDE

As a buyer, you’re investing in cash flow. You’re not just buying revenue—you’re buying the ability to pay yourself, repay debt, and generate returns.

SDE helps you answer:

• What’s the owner making?

• What expenses can I remove or change?

• How much should I pay based on the earnings power?

But buyer beware: Not all SDE calculations are created equal. That’s why our team at Sailfish performs thorough buyer-side diligence to verify and challenge add-backs before you sign on the dotted line.

Multiples: How SDE and EBITDA Are Used to Price a Business

Here’s where it all comes together: the valuation multiple.

Most small businesses sell for a multiple of SDE, not EBITDA. That multiple typically ranges from 2x to 4x based on:

• Industry

• Growth rate

• Owner involvement

• Recurring revenue

• Team strength

• Customer concentration

Example:
If your SDE is $300,000 and your business is well-run with steady growth, you might sell at a 3x multiple = $900,000 sale price.

On the other hand, buyers of larger companies (often private equity firms) will use EBITDA multiples—usually higher because they’re buying a system, not a job.

The Role of a Business Broker in Recasting SDE

This is where most sellers go wrong. They try to value the business based on tax returns or QuickBooks reports without recasting the numbers.

A skilled business broker:

• Rebuilds your P&L to highlight total owner benefit

• Defends every add-back with documentation

• Builds a story around the numbers that buyers can trust

At Sailfish Equity Advisors, we walk sellers through this step-by-step—confidentially, strategically, and with the buyer’s mindset in mind.

Final Thoughts: Choosing the Right Metric for Your Business

When it comes to small business sales, SDE is king.

If you’re selling your business and still thinking in EBITDA terms, you’re mispricing your value and potentially leaving hundreds of thousands on the table.

If you’re buying a business and ignoring SDE, you’re missing the most accurate picture of what the business can do for you.

SDE doesn’t just tell a story—it defines your future.

Why Work With Sailfish Equity Advisors?

• Over 1,000 Businesses Sold

• 25+ Years of Business Sale Experience

• Experts in SDE Recasting and Deal Structuring

• Confidential, Hands-On Guidance

• Nationwide Network of Buyers and Capital Sources

• Mission-Driven, Owner-Centric Approach

We’ve built, scaled, and sold businesses ourselves. We know what it’s like to sit on your side of the table—and we’re here to help you exit with confidence, clarity, and maximum value.

Ready to understand what your business is worth—and how SDE can drive the number higher?
Let’s talk. Confidentially. Strategically. And with your legacy in mind.