Guide
The difference between SDE and EBITDA, and which your buyer uses
Updated
These two numbers describe the same trading year and can differ by half. Your size mostly decides which one your buyer uses.
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How this calculator works
- The default multiple is 5.5x EBITDA, the median reported for deals in the $5M to $50M band by the IBBA and M&A Source Market Pulse survey for Q2 2025. It was compiled from 272 completed transactions reported by 326 business brokers and M&A advisors (IBBA and M&A Source, Market Pulse Q2 2025).
- The same survey reported a median of 2.3x for businesses selling under $500,000.
- The public company comparison is 16.95x EBITDA: the total market EV/EBITDA for US firms with positive EBITDA excluding financials. It comes from NYU Stern's Enterprise Value Multiples by Sector dataset, data as of January 2026 across 5,994 firms (NYU Stern, Damodaran). Including financials the same dataset reports 19.73x.
- Those two figures measure different things and that is the point of showing both. One is what listed companies trade at; the other is what privately held businesses actually sold for. A private business is not a small listed company, and the gap between the two lines is the combined effect of size, illiquidity, customer concentration and owner dependence.
- Main Street and lower middle market are the survey's own bands: Main Street is up to $2M and the lower middle market is $2M to $50M. Below roughly $2M, deals are usually quoted on SDE (seller's discretionary earnings, the owner's total benefit), not EBITDA. So a multiple from one basis cannot be applied to the other.
- Surplus cash and debt are treated the way a buyer treats them. Enterprise value is what the business is worth; then cash is added and debt-like items are deducted to reach what reaches shareholders. Deferred consideration, earn-outs and working capital adjustments are not modelled and routinely move the final figure.
- This is an indication, not a valuation. It applies no adjustment for sector, growth, margin, customer concentration or owner dependence, and a real valuation is mostly the work of making those adjustments.
The difference between SDE and EBITDA in one line
SDE, seller's discretionary earnings, is the total financial benefit the business gives one full-time owner-operator: profit before interest, tax, depreciation and amortisation, plus the owner's own compensation and discretionary spending. EBITDA is the same figure after a market-rate manager has been paid to do the owner's job.
So SDE is the right basis where the buyer will run the business themselves, and EBITDA where the buyer will employ somebody to. That maps closely onto the Market Pulse survey's own split at around $2M, with Main Street quoted on SDE and the lower middle market on EBITDA.
Applying a multiple from one basis to the other is the single most common arithmetic error in small business valuation.
Add-backs buyers usually accept
One owner's salary and payroll taxes at market rate, on an SDE basis. Genuinely one-off legal or settlement costs, with the file to prove it. Personal vehicles, travel and phone run through the business. Discretionary owner benefits such as a family member on payroll who does not work there.
Each one needs documentary support. An add-back you assert is an argument; an add-back with an invoice behind it is a number.
Add-backs buyers usually reject
Deferred maintenance dressed up as a one-off. Marketing you stopped spending because you were preparing to sell. Anything described as exceptional that appears in more than one year, which by definition is not.
The most damaging are the ones that get withdrawn in diligence. An add-back that collapses under scrutiny costs more than its own value at the multiple. It makes the buyer re-test every other number you gave them, which is where deals slow down and prices move.
How to present it
A single bridge, from statutory profit to adjusted earnings, one line per adjustment, each with a reference to the evidence. Three years of it if you have three years.
Then apply the right multiple to the right basis, and say which you have used. At 5.5x, describing $400,000 of SDE as EBITDA overstates the business by roughly $800,000, and it will be found.