SDE vs EBITDA: Which One Matters for Your Acquisition?

Walk onto any deal forum and you'll see brokers list a business at "3x SDE" while a private equity buyer down the road lists the same business at "7x EBITDA." Same building, same revenue, very different numbers. The reason is that SDE and EBITDA are different metrics, not two names for the same thing.

The 30-second definitions

EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. It approximates the operating cash the business throws off, independent of how it's financed or what tax jurisdiction it's in. It assumes the new owner will hire someone (at market wage) to run the company.

SDE — Seller's Discretionary Earnings. EBITDA plus the owner's salary and discretionary perks. It assumes the buyer is the new operator and will take that salary themselves.

The math: same business, two numbers

A landscaping company doing $2M in revenue:

• Net income: $180,000
• Add back interest, tax, D&A: $80,000 → EBITDA = $260,000
• Add back owner's $120,000 salary + $20,000 of personal vehicle/health/phone perks → SDE = $400,000

At a 3x multiple, the same company is "worth" $780k on EBITDA and $1.2M on SDE. Neither is wrong; they describe different buyers.

When to use each

Use SDE when:

• The deal is roughly under $1M–$2M in enterprise value.
• The buyer plans to be the day-to-day operator.
• There is one owner-operator pulling one salary.
• You're looking at Main Street businesses on BizBuySell-style listings.

Use EBITDA when:

• The deal is roughly over $2M in enterprise value.
• The business already has a general manager, or you intend to hire one.
• There are multiple owners drawing salaries or owner-family members on payroll.
• You're underwriting alongside a lender or institutional investor — they expect EBITDA.

The trap: comparing your number to the wrong multiple

The most common SMB acquisition mistake is comparing an SDE-based price to an EBITDA-based multiple benchmark (or vice versa). If a peer transaction sold at "5x" and you don't know which earnings number that 5x is applied to, the comparison is meaningless. Always make multiples and the earnings number speak the same language before you do any valuation math.

Add-backs work the same way — but the bar is different

Both SDE and EBITDA get adjusted with add-backs (one-time legal fees, non-recurring software, a discontinued product line). The difference is what counts as "discretionary":

• In SDE, the owner's full compensation and perks are add-backs by definition.
• In EBITDA, only the above-market portion of owner comp is an add-back — you still have to pay someone market wage to do the job.

Which number should you trust on a broker book?

Whichever one the seller's broker leads with is usually the bigger one. That doesn't make it wrong — it makes it worth verifying. Pull the underlying P&L, rebuild both numbers yourself, and scrutinize every add-back the same way a Quality of Earnings analysis would.

That's exactly what TrueEBITDA automates — it produces both an SDE and EBITDA bridge from the target's financials so you can see, in one place, what each buyer profile would actually pay.