SDE or EBITDA: which measure buyers use for a business your size

The short version

There are two common ways to measure what a business earns: SDE and EBITDA.
SDE includes one owner's full pay. EBITDA assumes the owner is replaced by a paid manager.
SDE is usual for businesses earning under about $1 million, and EBITDA above that.
Brokers and lenders differ, so always ask which measure a number uses.
An SDE multiple and an EBITDA multiple are not comparable. Always check which one a number refers to.

SDE: seller's discretionary earnings

SDE shows everything the business produces for one full-time owner. It starts with profit, then adds back:

The owner's salary and benefits.
Interest on business loans.
Taxes on business income.
Depreciation and amortization, which are accounting charges for the wearing out of equipment and other assets.
Personal and one-time expenses that a new owner would not have.

SDE answers the question an owner-operator asks: "If I buy this and run it myself, what does it pay me?"

EBITDA: earnings before interest, taxes, depreciation and amortization

EBITDA starts from the same place but does not add back the owner's pay. Instead, it assumes someone is paid a fair market salary to run the business.

EBITDA answers the question a larger buyer asks: "If I own this and hire someone to run it, what does it earn?"

Which one applies to you

A common guideline: businesses earning less than about $1 million a year are usually measured on SDE. These are typically run by their owner, and the buyer will often step into that role. Once a business earns more than about $1 million in EBITDA, buyers usually expect a paid manager to run it, and EBITDA becomes the more common measure.

In practice, it varies. Brokers, lenders and buyers each have their own habits, and the same business can be described both ways depending on who is looking at it. Some SBA lenders work from SDE well above $1 million. Some brokers price smaller businesses on EBITDA. What matters is knowing which measure a number is based on, and comparing it only with benchmarks that use the same one.

Business brokers report SDE multiples even for sales above $5 million, and EBITDA multiples for sales under $500,000. In Pepperdine's 2026 survey, brokers used each measure across every size of sale.

Why the multiples look different

SDE is always the larger number, because it includes the owner's pay. So SDE multiples are lower than EBITDA multiples for the same business.

Here is an example. A business has $400,000 in SDE. Hiring a manager to replace the owner would cost $120,000 a year. Its EBITDA is $280,000. A price of $1 million is 2.5 times SDE, or about 3.6 times EBITDA. Same business, same price, two different multiples.

Mixing them up is one of the most common mistakes owners make with benchmarks.

For your accountant: "What are my SDE and my EBITDA, and how did you calculate each?" Listen for: both figures, with the owner's pay and the manager's salary shown separately.
For a broker or valuation professional: "Which measure would buyers use for my business, and why?" Listen for: a clear answer tied to your size and to whether likely buyers would run the business themselves or hire a manager.
For anyone quoting a multiple: "Is that a multiple of SDE or of EBITDA?" Listen for: a straight answer. A multiple without its measure tells you nothing.

Figures from Pepperdine Private Capital Markets Report, 2026. Measures from conventions commonly used by business brokers and lenders; practice varies. Benchmarks describe what happened in other sales. They do not predict yours.

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