If you don’t know whether to use SDE or EBITDA, you might be valuing your business the wrong way — and leaving serious money on the table.

Both numbers matter. But which one buyers use depends on more than just your revenue.

It depends on how your business runs — with or without you.

Let’s Break It Down (in Plain English)

SDE (Seller’s Discretionary Earnings) = What you — the owner — take home.

It includes net profit plus your salary, personal perks, and one-time or non-business expenses.

SDE tells buyers, “If you ran this business yourself, here’s what you’d earn.”

That’s why it’s used most often for owner-operated businesses — especially ones under ~$5 million in revenue.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) =

A more “neutral” number that shows what the business earns before financing and accounting adjustments.

EBITDA is used by buyers who aren’t planning to run the business themselves.

They want to see how much the business produces on its own, with leadership and systems in place.

So… Which One Applies to You?

Traditionally:

• Under $5M in revenue, owner still active → Buyers use SDE
• Over $5M, or hands-off owner → Buyers use EBITDA

But here’s the nuance:

If your business is under $5M but already runs without you — you’ve delegated, your team handles operations, and you’re mostly strategic — then many buyers will value your business using EBITDA, even at a smaller size.

Why? Because they’re not buying you — they’re buying a machine. And machines that run without their creator are worth more.

Real-World Example

Two businesses both earn $800K in profit:

• One has the owner working 60 hours/week, managing everything → Valued on SDE, lower multiple
• One has systems, staff, and the owner is mostly out → Valued on EBITDA, higher multiple

Same profit. Different price tag.

Quick Win: Calculate Both

1. Start with your net profit
2. Add back your salary, perks, and one-time costs → That’s your SDE
3. Remove all owner-dependent expenses → That’s your EBITDA

Now you’ve got both — and you can speak the buyer’s language, whichever one they use.

Want help making sense of your numbers (and getting the highest valuation possible)?
Download the free Exit Toolkit now.