EBITDA vs. SDE: Choosing the Right Valuation Metric for Your Business
When valuing a business for sale, two financial metrics dominate the conversation: Adjusted EBITDA and Seller’s Discretionary Earnings (SDE). Understanding the difference between SDE and EBITDA is critical for business owners preparing to sell. Both metrics tell a story about a company’s profitability, but they speak to different kinds of buyers and deal structures. Knowing which valuation metric to use and what it truly represents can make or break your sale outcome. As business brokers, we can tell you this: the right metric for your business depends on its size, structure, and day-to-day operations. Let’s break down SDE vs EBITDA so you can position your business correctly from the start. What Is Adjusted EBITDA? Adjusted EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, but with one key refinement: normalization. This metric is used to value mid-sized businesses and larger companies with professional management teams in place. EBITDA beg...