SDE vs EBITDA: what is the difference?
Both measure earnings before financing and accounting choices. The single practical difference is how they treat the owner's own pay.
Direct answer: EBITDA is earnings before interest, taxes, depreciation and amortization, after paying every manager including the owner. SDE is EBITDA plus one owner-operator's salary, benefits and discretionary perks. SDE is used for owner-run small businesses; EBITDA is used for larger, manager-run companies.
Side-by-side comparison
| SDE | EBITDA | |
|---|---|---|
| Owner's salary | Added back | Treated as a real expense |
| Personal / discretionary perks | Added back | Usually normalized out too |
| Typical business size | Under roughly $1–2M earnings | Above roughly $1–2M earnings |
| Typical buyer | Individual owner-operator | Private equity, strategic, family office |
| Typical multiple range | ~2x–4x | ~4x–8x+ |
| Assumes | Buyer works in the business | Business pays a manager |
Converting between them
EBITDA = SDE − market salary of a manager to replace the owner
Example: a business with $300,000 SDE that needs a $90,000 general manager has $210,000 of EBITDA. At 3.0x SDE it is worth $900,000; at 5.0x EBITDA it is worth $1,050,000. The metric you pick changes the answer, so never compare an SDE multiple to an EBITDA multiple directly.
Which one should you use?
- Use SDE if you will run the business full-time yourself and the owner currently does real work in it.
- Use EBITDA if the business already has a management layer, or you plan to hire a manager and stay passive.
- Use both when the deal sits at the boundary. Value on SDE for a hands-on buyer, sanity-check on EBITDA to see whether the business still works with paid management.
The mistake that costs buyers money
A listing quotes "$400,000 cash flow, 3.5x" — but that cash flow is SDE. If you intend to stay in your job and hire an operator for $110,000, your real earnings are $290,000, and the price you agreed represents 4.8x EBITDA, not 3.5x. Decide who runs the business before you agree on a multiple.
Test both scenarios on your deal
The AcquireAI acquisition calculator models purchase price, debt service and returns from the numbers on a listing, so you can compare an owner-operator case against a hired-manager case in a couple of minutes.
Frequently asked questions
Is SDE always higher than EBITDA?
Yes, for any business where the owner draws compensation. SDE equals EBITDA plus one owner's salary, benefits and discretionary expenses, so it is higher by exactly that amount.
Why are EBITDA multiples higher than SDE multiples?
EBITDA is a smaller number that already pays for management, and it usually describes a larger, less owner-dependent business. Buyers pay more per dollar of that safer earnings stream.
Which do lenders use?
Lenders underwrite the cash available to service debt after the buyer's own living wage, so they effectively work from SDE minus your required salary. Ask what officer's compensation the lender assumes before you model your coverage ratio.