SDE vs EBITDA: what is the difference?
By Josh Elberg, founder of Palavir · Published · Updated
Palavir is a Michigan data and automation consultancy.
Short answer
SDE (seller's discretionary earnings) is profit before paying the owner. EBITDA (earnings before interest, taxes, depreciation and amortization) still counts the owner's pay as a cost. So SDE is the bigger number for the same business, and many small-business listings quote SDE, so the profit you see often includes the pay of the person doing the job.
One made-up business, three profit figures
Round numbers we made up to show the steps. They are not from a real business or from our data.
- SDE$165,000
- EBITDA$90,000
- SDE after a $70,000 manager$95,000
What do SDE and EBITDA each include?
Both start with net income, the profit after all expenses. Then they add back costs that do not show how the business performs.
- EBITDA adds back interest (the cost of debt), taxes, depreciation and amortization (spreading a past purchase cost over several years). It still counts what the business pays its people, including the owner, as an expense.
- SDE adds back everything EBITDA does, plus the owner's pay and personal costs run through the business, such as a car or a trip. Sellers' adjustments of this kind are called add-backs.
| Step (illustrative) | Amount |
|---|---|
| Net income after all expenses, including a $70,000 owner wage | $60,000 |
| Add back interest | $5,000 |
| Add back taxes | $10,000 |
| Add back depreciation | $15,000 |
| EBITDA | $90,000 |
| Add back the owner's wage | $70,000 |
| Add back the owner's personal costs run through the business | $5,000 |
| SDE | $165,000 |
Net income after all expenses, including a $70,000 owner wage
- Amount
- $60,000
Add back interest
- Amount
- $5,000
Add back taxes
- Amount
- $10,000
Add back depreciation
- Amount
- $15,000
EBITDA
- Amount
- $90,000
Add back the owner's wage
- Amount
- $70,000
Add back the owner's personal costs run through the business
- Amount
- $5,000
SDE
- Amount
- $165,000
At 2.5x SDE the ask is $412,500. Divide the same ask by EBITDA and it is about 4.6x. Same business, same price, two very different multiples, so always ask which profit figure a multiple uses. If you would hire a manager for $70,000, the profit you can count on is about $95,000 before loan payments, and the price is about 4.3x that. Ask the seller to show every add-back with a document, because add-backs are the seller's claims.
Why do multiples rise with size?
A multiple is the asking price in years of profit. In our 1,809 US listings with a clear price and profit, the middle ask rises at every step in price.
- under $100,0001.97x
- $100,000 to $250,0002.40x
- $250,000 to $500,0002.66x
- $500,000 to $1 million2.97x
- $1 million to $2 million3.35x
- $2 million to $5 million4.10x
- $5 million and up5.23x
| Asking price band | Listings | Multiple (years of profit) | Middle yearly profit | Middle margin |
|---|---|---|---|---|
| under $100,000 | 249 | 1.97x | $24,720 | 46% |
| $100,000 to $250,000 | 303 | 2.40x | $70,080 | 31% |
| $250,000 to $500,000 | 375 | 2.66x | $134,504 | 29% |
| $500,000 to $1 million | 343 | 2.97x | $232,055 | 27% |
| $1 million to $2 million | 231 | 3.35x | $398,070 | 27% |
| $2 million to $5 million | 208 | 4.10x | $700,000 | 24% |
| $5 million and up | 100 | 5.23x | $1,706,648 | 25% |
under $100,000
- Listings
- 249
- Multiple (years of profit)
- 1.97x
- Middle yearly profit
- $24,720
$100,000 to $250,000
- Listings
- 303
- Multiple (years of profit)
- 2.40x
- Middle yearly profit
- $70,080
$250,000 to $500,000
- Listings
- 375
- Multiple (years of profit)
- 2.66x
- Middle yearly profit
- $134,504
$500,000 to $1 million
- Listings
- 343
- Multiple (years of profit)
- 2.97x
- Middle yearly profit
- $232,055
$1 million to $2 million
- Listings
- 231
- Multiple (years of profit)
- 3.35x
- Middle yearly profit
- $398,070
$2 million to $5 million
- Listings
- 208
- Multiple (years of profit)
- 4.10x
- Middle yearly profit
- $700,000
$5 million and up
- Listings
- 100
- Multiple (years of profit)
- 5.23x
- Middle yearly profit
- $1,706,648
From $250,000 up, the middle profit margin stays between 24% and 29%, so a richer margin does not explain the higher multiple. A common view is that buyers pay more per dollar of profit that does not depend on one person. The middle profit under $100,000 is $24,720, which may be little more than the owner's own wage. At $5 million and up it is $1,706,648. We did not test the reason. For multiples by trade, see valuation multiples by industry.
What if I will not run the business myself?
SDE fits a buyer who takes the owner's seat. If you plan to be hands-off, the owner's pay is not yours to keep, because someone must do the job and you pay them. Three steps:
- Subtract a fair salary for the person who will do the owner's role.
- Check what is left against the loan payments.
- Compare the price to the smaller profit, not the seller's SDE.
Listings say little about the owner's role. Only 9% of US listings state owner hours, and our model scored 37% as highly dependent on the owner. Ask how many hours the owner works and what they personally do. See owning a business without running it.
What this data cannot tell you
- These are asking prices, not the prices businesses sold for.
- Profit is the seller's own figure. It often includes the owner's pay, so someone still has to do that work.
- It is a snapshot of listings from October 2026, not a survey of all businesses.
- The worked example is made up. It is not data and not a valuation.
- Definitions of SDE and EBITDA vary by broker and lender. Ask which one a figure uses.
Have a listing? We check it free.
Questions people ask
What is the difference between SDE and EBITDA?
EBITDA is profit before interest, taxes, depreciation and amortization. SDE starts from the same place and also adds back the owner's pay and the owner's personal costs run through the business. For one business, SDE is larger than EBITDA when the owner draws a wage.
What does SDE mean for a business for sale?
SDE is the total pre-tax money one working owner can take from the business. It is the profit figure many small-business listings use. It includes the owner's pay, so it is not what is left if you hire someone to do the owner's job.
Which is higher, SDE or EBITDA?
SDE, when the owner is paid through the business, because SDE adds back that pay. That is why a multiple of SDE looks lower than a multiple of EBITDA for the same price. In our illustration, 2.5x SDE equals about 4.6x EBITDA.
Do I use SDE or EBITDA to value a small business?
Brokers commonly price small owner-run businesses on SDE and larger ones with paid managers on EBITDA. Pick the measure that matches who will do the owner's job after you buy, and compare multiples only on the same measure.
Why do multiples rise as a business gets bigger?
In our listings the middle asking multiple climbs from 1.97 years of profit under $100,000 to 5.23 at $5 million and up (US, October 2026). A common view is that buyers pay more per dollar of profit that does not depend on one person. Our data shows the pattern in asking prices. It does not test the reason.
What should a hands-off buyer do about SDE?
Subtract a fair salary for whoever will run the business, because SDE counts the owner's pay as profit. If SDE is $165,000 and a manager costs $70,000, about $95,000 is left before loan payments in our illustration. Then compare the price to that smaller number.
Sources and method
Palavir Deal Scout: businesses-for-sale listings collected in October 2026 from nine marketplaces and brokers. 3,928 US listings, cut by asking-price band on October 28, 2026. 1,809 have a clear price and profit; repeats, ranges, sold listings and near-identical template listings from broker networks are removed. Profit is the seller-stated figure.
General information, not financial, legal or lending advice.