Buyers price your business off one of two earnings figures — SDE or EBITDA. Which one applies depends on the size of your business and who runs it, and the difference can move your valuation by six or seven figures.
SDE — for owner-operated businesses
Seller’s Discretionary Earnings takes your net profit and adds back the owner’s salary, benefits, personal expenses run through the business, and one-time costs. It answers a simple question: how much money does this business put in one owner-operator’s pocket? SDE is the standard for businesses roughly under $1M in earnings, where the owner is central to daily operations.
EBITDA — for manager-run businesses
Earnings before interest, taxes, depreciation, and amortization assumes a hired manager runs the business, so the owner’s salary is not added back — a market-rate manager wage stays as an expense. EBITDA is used for larger, less owner-dependent businesses, and it’s the language institutional and private-equity buyers speak.
Which one applies to you?
If the business would stumble the day you left, it’s an SDE business. If it runs on managers and systems without you, it’s an EBITDA business. Many growing companies sit at the crossover — and presenting the numbers the right way for the right buyer pool is part of what a good advisor does.
Why add-backs decide your number
Both figures live or die on add-backs — the legitimate personal or one-time expenses added back to show a buyer the true earnings. A defensible, documented recasting of your financials is often worth more to your final price than any negotiation tactic. Overstate them and diligence will claw the price back; understate them and you leave money on the table.
The multiple matters, but the earnings figure it multiplies matters more. Get the SDE or EBITDA right first.