If you've started researching how to price your business for sale, you've probably run into two acronyms that get used almost interchangeably — and shouldn't be: SDE and EBITDA. Understanding SDE vs EBITDA matters because buyers use different multiples for each, and using the wrong one can make your business look overpriced or underpriced before a buyer even looks at the details.

What Is SDE?

Seller's Discretionary Earnings (SDE) starts with your business's net profit and adds back the owner's salary, personal expenses run through the business, one-time costs, and non-cash expenses like depreciation. The idea is to show a buyer the full economic benefit of owning the business — including the value of the job the owner is doing, since in most small businesses the owner works in the business, not just on it. SDE is the standard metric for businesses valued under roughly $2–3 million.

What Is EBITDA?

EBITDA — earnings before interest, taxes, depreciation, and amortization — strips out financing and accounting decisions to show the business's core operating profit. Unlike SDE, EBITDA does not add back the owner's compensation as pure profit; it typically includes a market-rate salary for whoever runs the business, on the assumption that a professional manager, not necessarily the owner, is running day-to-day operations. EBITDA becomes the standard once a business is large enough to be run by a management team, generally above $2–3 million in earnings.

Start with your business's net profit from the P&L. Then add back interest, taxes, and depreciation, the same items you'd add back for EBITDA. From there, keep going: add back your own salary and payroll taxes, health insurance if the business pays for it, your personal cell phone or vehicle if it runs through the business, one-time expenses like a lawsuit settlement or a one-off equipment repair, and any above-market rent if you own the building and pay yourself rent. What's left is SDE — a number that's often meaningfully higher than the "profit" line on your tax return, because that line was minimized on purpose to reduce your tax bill, not to show a buyer what the business really generates.

This is also where sellers get into trouble. Every add-back needs a paper trail — a receipt, an invoice, a bank statement showing the expense. Buyers and their accountants will ask for documentation on anything material, and add-backs you can't substantiate get thrown out of the calculation, which lowers your SDE and your price along with it.

Why Does the Choice Change Your Price?

This is the part sellers miss: SDE multiples and EBITDA multiples are not interchangeable, even for the same business. SDE multiples are typically lower — often 2x to 3.5x — because SDE already includes the owner's full compensation as part of "earnings." EBITDA multiples run higher — often 4x to 7x or more — because EBITDA has already backed out a manager's salary as an expense, so the remaining number is a smaller, more "pure" profit figure, and buyers apply a bigger multiplier to a smaller base.

If someone quotes you an EBITDA multiple but your business is actually priced on SDE, you'll misjudge your value in either direction. Always confirm which metric — and whose calculation — you're looking at before comparing multiples across sources.

Which One Should You Use to Value Your Business?

For most Silver Surf clients — owner-operated businesses generating under a few million dollars in earnings — SDE is the right metric. It reflects the real economic reality: a buyer stepping into your seat gets your income plus the business's profit, combined. Once a business has a general manager or leadership team running operations without the owner, EBITDA becomes the more accurate lens, because a buyer is acquiring a management structure, not a job.

Either way, the number only means something once it's paired with the right multiple for your business's size, industry, and risk profile — which is exactly what a proper valuation is for, not a generic formula pulled off a spreadsheet template.

Here's what that looks like with real numbers. Say your business shows $150,000 in net profit, plus $80,000 in owner salary, $15,000 in personal expenses, and $10,000 in depreciation. Your SDE is $255,000, and at a typical 2.5x SDE multiple for an owner-operated business, that's roughly a $637,500 sale price. Calculate the same business on an EBITDA basis instead — backing out a $60,000 market-rate manager's salary rather than adding back the full owner's compensation — and EBITDA comes to about $195,000. At a 5x EBITDA multiple, that's roughly $975,000. Same business, two different "correct" numbers, depending entirely on which metric and multiple you're using together.

What Should You Do With This Information?

Before you set an asking price or start comparing your business to "similar" sales you've seen online, confirm which earnings metric those comparisons are actually using. Two listings that look identical on the surface can be priced on completely different bases. If you want help sorting out which metric applies to your business and what multiple is realistic, get in touch with Silver Surf — we run this calculation with owners every week and can tell you where you actually stand.

For the bigger picture on what happens after your number is set, our step-by-step guide to selling your business covers the full process from valuation to close.

FAQ

1. Is SDE the same as net profit?

No — SDE starts with net profit and adds back the owner's salary, personal expenses run through the business, and one-time costs, to show the full economic benefit of owning the business.

2. Which is higher, SDE or EBITDA, for the same business?

Usually SDE is higher, because it adds back the owner's full compensation as profit, while EBITDA assumes a market-rate manager's salary as a real expense.

3. At what size does a business switch from SDE to EBITDA?

Generally once earnings exceed roughly $2 to $3 million and the business is run by a management team rather than the owner personally.

4. Can a business be valued on both SDE and EBITDA?

Yes, though they'll produce different numbers using different multiples — what matters is using the metric and multiple consistently together, not mixing an SDE multiple with an EBITDA figure.