BreakThru Realty

SDE vs. EBITDA: How Businesses Are Valued and What the Multiple Means

Owner-run businesses are usually priced on seller's discretionary earnings (SDE); larger businesses with management in place are priced on EBITDA. Either way the price is the earnings figure times a multiple, and the multiple is the market's view of how safe and transferable those earnings are.

Storefronts and parked cars along a small town main street at sunset

Reviewed by Tyson E. Sam, Founder and Broker of Record, BreakThru Realty, Florida License 3565210

Find Out What My Business Is Worth · (786) 914-1017

What SDE Measures

Seller's discretionary earnings are the total benefit one full-time owner operator takes from the business in a year: net profit, plus the owner's own salary and payroll taxes, the owner's health insurance and personal expenses run through the business, interest, depreciation and amortisation, and genuine one time costs. It assumes the buyer will run the business, which is why it is the measure for restaurants, salons, service companies, shops and most businesses selling for under a few million dollars.

What EBITDA Measures

EBITDA is earnings before interest, taxes, depreciation and amortisation, after paying a market salary for whoever runs the business day to day. It assumes the owner does not have to work in it, so it suits businesses with a manager and a team in place, and it is the measure larger buyers, investors and their lenders use. The same business will always show a lower EBITDA than SDE, by roughly the cost of the manager it would need.

A Worked Example

An illustration, not a valuation: a business shows a net profit of $120,000 on its tax return. The owner draws a $80,000 salary, the business pays $15,000 of the owner's health insurance, depreciation is $10,000 and there was a one time $5,000 legal bill. Its SDE is $230,000. If running it without the owner would take a $75,000 manager, its EBITDA is about $155,000. A buyer who will run it themselves looks at the first number; an investor who will hire a manager looks at the second.

How the Multiple Works

The multiple is the price divided by the earnings. Because SDE includes the owner's pay, SDE multiples are lower than EBITDA multiples for the same business. In the market, owner operated main-street businesses commonly trade at around two to three times SDE, and larger companies valued on EBITDA commonly trade at higher multiples that rise with size. Those are market observations, not a promise: the multiple for your business comes from sales of comparable businesses and from what a buyer's lender will finance.

What Moves the Multiple

Up: earnings that have grown for three years, recurring or contracted revenue, a customer base with no single dominant customer, a long lease with options, trained staff who stay, systems that run without the owner, and books that match the tax returns and the bank. Down: falling sales, cash that is not on the return, a short lease, key relationships that belong to the owner, deferred equipment replacement and an industry that lenders avoid.

When Assets Set the Floor

A business that earns little is worth roughly what its assets would bring: equipment, build-out, inventory at cost, licences that are hard to obtain and a well-placed lease. That asset value is the floor under any earnings-based price, and for a business without steady profits it is the price.

Find Out What My Business Is Worth

Tell us the type of business, the city, how long it has operated, annual revenue, owner benefit or seller's discretionary earnings, EBITDA if you track it, monthly rent and lease expiry, number of employees, how involved you are, why you are selling, your timeline and whether you would consider seller financing. A licensed BreakThru business broker prepares a confidential valuation from comparable sales and replies within one business day. Everything you tell us is confidential, the valuation is free, and nothing is listed or announced unless you decide to sell. Prefer to talk now? Call (786) 914-1017.

Questions Owners Ask

How much is my business worth?
Most owner operated businesses in Florida sell for a multiple of seller's discretionary earnings: net profit plus the owner's salary, benefits and one time or personal expenses run through the business. Where the multiple falls depends on the industry, the lease, the staff, the trend in the numbers and how much the business depends on you. A confidential valuation gives you the range for your business and the reasons behind it.
Will my employees, customers or landlord find out?
Not from us. The business is marketed without its name or address, buyers sign a nondisclosure agreement and prove their funds before they learn who you are, and showings happen after hours or are presented as something else. The landlord is approached only once there is an accepted offer, because the lease has to be assigned.
How long does it take to sell a business?
Six to nine months from listing to closing is common for a well prepared small business, faster when the price is right and the records are clean, longer for businesses that need a licensed buyer or a franchisor's approval. The escrow period after an accepted offer is usually sixty to ninety days.

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