The one-sentence difference
SDE includes one owner's full compensation and benefits; EBITDA does not. SDE answers 'what would a working owner earn?' while EBITDA answers 'what does this business earn with management already paid for?'
When each is used
Small owner-operated businesses are almost always priced on SDE, typically in a range of two to four times. Larger businesses with a management team are priced on EBITDA, at multiples that rise with size, growth and revenue quality.
The crossover usually happens somewhere around $1M of earnings, though the presence of a real management team matters more than the exact number.
Why the distinction changes price
Applying an EBITDA-style multiple to an SDE figure inflates the price, because SDE already includes the salary of the person doing the work. This is one of the most common mistakes in small business pricing — in both directions.
Frequently asked questions
- Is SDE the same as cash flow?
- No. SDE is an earnings measure before debt service, capital expenditure and taxes. Actual cash available to you will be lower once loan payments and equipment replacement are included.
- What add-backs are legitimate?
- Genuinely non-recurring or personal expenses — owner salary, personal vehicles, one-time legal costs. Recurring costs a new owner will still incur are not add-backs.
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