EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization, measures a business's operating cash flow independent of how it is financed or taxed. Unlike SDE, EBITDA does not add back a market-rate owner/manager salary, so it is used for larger, manager-run companies (roughly $5M+ in value).
SDE vs EBITDA on the same business
The two differ mainly by one line: the owner's salary.
| Line | Amount |
|---|---|
| SDE (single owner-operator) | $350,000 |
| Less: market manager salary | −$90,000 |
| EBITDA | $260,000 |
Because EBITDA assumes you'll pay a manager to run the business, it is always lower than SDE for the same company, and its multiples are usually higher.
Why it matters when buying a business
Sellers and brokers sometimes quote whichever metric flatters the price. If a business is priced on EBITDA but you'll run it yourself, you may be leaving your own salary on the table; if it's priced on SDE but needs a full-time manager, the real return is thinner. Always confirm which metric a multiple is applied to before you offer.
