SDE vs EBITDA: Which Earnings Figure, Which Multiple

SDE and EBITDA side by side

How to calculate SDE with add-backs

1. Start with pre-tax net income from your P&L or tax return.
2. Add back one owner's full salary, payroll taxes and benefits.
3. Add back personal expenses the business pays for: a vehicle, phone, travel, family insurance.
4. Add back interest, depreciation and amortization.
5. Add back costs that genuinely won't recur: a lawsuit, a move, a one-off rebrand.
6. Subtract anything the business gets below market that a buyer will have to pay for, such as cheap rent from the owner's building or an unpaid family member doing real work.

Keep the paper trail. A buyer's accountant will ask for an invoice, statement or payroll record behind every add-back, and anything they can't verify comes out.

Example: SDE add-backs for an owner-operated business

Example. The figures below are hypothetical, chosen to show the arithmetic. They are not a real business.

Not added back in this example: routine repairs, a key employee's annual bonus and the marketing budget. They recur, so a buyer will keep paying them.

Example: applying the right multiple

Example. Say this business is in the Healthcare sector. Its $543,000 of SDE falls in the $500K-$1M SDE band, where the median sale multiple is 3.4x SDE (interquartile range 2.5x-4.4x, 42 closed sales, as of 2026-10-28). That puts the example at about $1.84M, within a middle range of $1.36M to $2.38M.

The common mistake is putting an EBITDA multiple on SDE. The same sector's $2M-$3M EBITDA median is 5.1x EBITDA (13 closed sales, as of 2026-10-28). Applied to $543,000 of SDE it gives $2.79M, which counts the owner's pay as profit and prices a small owner-run business like a larger, managed one.

Source: Axia Growth analysis of 4,554 closed small-business sales over $500K, aggregated and de-identified.

Which multiple goes with which earnings figure

A multiple only means something next to the earnings figure it was measured on. SDE multiples are lower because SDE is the bigger number: it still includes the owner's pay. EBITDA multiples are higher because EBITDA has already paid for management, and because businesses big enough to report EBITDA tend to be less dependent on one person.

Lowest and highest median sale multiple among sectors with at least 10 closed sales in each band. Data as of 2026-10-28.

Source: Axia Growth analysis of 4,554 closed small-business sales over $500K, aggregated and de-identified.

See every sector and size band, with interquartile ranges and methodology, in the EBITDA & SDE multiples index. To put your own number against them, use the free business value calculator; it switches between SDE and EBITDA multiples for you.

Questions

What is the difference between SDE and EBITDA?

EBITDA is earnings before interest, taxes, depreciation and amortization, after paying everyone who works in the business, including the owner, at a market wage. SDE (seller's discretionary earnings) starts from the same place and also adds back one owner's full salary and the personal perks run through the business. SDE shows what one owner-operator takes home; EBITDA shows what the business earns for an owner who doesn't work in it.

How do you calculate SDE?

Start with pre-tax net income from the P&L. Add back one owner's salary and payroll taxes, the owner's personal benefits and perks paid by the business, interest, depreciation and amortization, and genuinely one-time costs. Then subtract anything the business is getting below market that a buyer would have to pay for, such as cheap rent from the owner's own building.

What counts as an add-back?

An expense a buyer won't carry after the sale: the owner's pay and perks, personal expenses run through the company, interest on debt the seller pays off at closing, non-cash depreciation and amortization, and one-time costs like a lawsuit or a move. Normal repairs, staff bonuses, marketing and anything that recurs most years are not add-backs. Every add-back needs a document a buyer can check.

Should I use SDE or EBITDA to value my business?

Use SDE if you work in the business full time and a buyer would have to replace you. Use EBITDA if a hired manager already runs it day to day. In Axia Growth's sales data the size bands follow this split: SDE for businesses under $2M of earnings, EBITDA above that.

Which multiple goes with which earnings figure?

SDE multiples apply only to SDE and EBITDA multiples apply only to EBITDA. EBITDA multiples are usually higher, but EBITDA is the smaller number, because a manager's salary has already been paid. Putting an EBITDA multiple on SDE counts the owner's pay twice and overstates the value.

Can I add back more than one owner's salary?

Usually not. SDE adds back one full-time owner. If two partners both work in the business, a buyer will add back one and treat the other as a job that still has to be filled at a market wage.

Where can I see real SDE and EBITDA multiples for my industry?

The multiples index lists median and interquartile multiples by sector and size band from closed small-business sales, and the free calculator applies them to your own earnings figure.

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