SDE vs EBITDA Valuation
Understand when to value your business based on SDE (Seller's Discretionary Earnings) versus EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
Low
2.0x SDE
Average
3.5x SDE
High
6.0x+ EBITDA
Key Value Drivers
- Business Revenue Size ($1M-$5M transition)
- Owner Salary & Perks Add-backs
- Management Team Structure & Independence
- Buyer Type (Individual vs Private Equity)
- Accounting Transparency & Audited Financials
2026 Business Valuation
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Financials
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SDE vs. EBITDA: Which Valuation Metric is Right?
For small-to-medium business owners, calculating earnings is the first step to an exit. SDE and EBITDA represent different views of profitability. SDE is owner-centric, while EBITDA is institutional-centric.
The $1M EBITDA Valuation Inflection Point
As online businesses scale past $1M in net profit, buyers shift their analysis from SDE to EBITDA. If your business requires you to work 40+ hours a week, a buyer must hire a replacement manager, which reduces SDE down to EBITDA. Documenting roles and hiring key deputies is essential to unlock higher EBITDA multiples.
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Frequently Asked Questions
Methodology Reviewer
Parth Shitole
Parth Shitole is a financial data modeler specializing in lower-middle M&A transaction valuation. baseline multipliers are verified quarterly against transaction logs from public brokerages.