EBITDAvsSeller's discretionary earnings (SDE)
The two most common owner-adjusted earnings metrics in lower-middle-market M&A. They're close cousins — but the difference decides which multiple table you look at.
The one-sentence difference
EBITDA adds back one owner-level compensation item (the excess of owner comp over market GM comp). SDE adds back the entire owner compensation package. For a business paying its owner $200K when a market-rate GM would cost $110K: EBITDA adds back $90K, SDE adds back $200K plus benefits.
Side-by-side
| Dimension | EBITDA | SDE |
|---|---|---|
| Owner compensation add-back | Excess over market GM comp only | Entire owner comp including benefits, PTO, phone, auto |
| Typical use | $1M+ businesses; every institutional buyer | Sub-$1M owner-operator businesses |
| Multiple band (home services) | 4–13× depending on category and size | 2–4× across most categories |
| Buyer implication | Assumes buyer replaces owner with market-rate manager | Assumes buyer replaces owner with themselves |
| D&A treatment | Added back | Added back |
| Interest treatment | Added back | Added back |
| Owner benefits (auto, phone, health) | Added back only if above-market | Added back entirely |
When to use which
Use EBITDA whenever the business earns $1M+ and the likely buyer is an institution (PE, strategic, family office). Multiple tables at that size are quoted on EBITDA.
Full article on EBITDA →Use SDE for owner-operator businesses under $1M. Buyers at that size are individuals stepping into the owner's role and want a single number reflecting total economic benefit.
Full article on Seller's discretionary earnings (SDE) →What they have in common
Both back out interest, taxes, depreciation, amortization, and one-time / non-recurring items. Both require careful quality-of-earnings work to defend in diligence.
Frequently asked
Is EBITDA always higher than SDE?
No — EBITDA is always lower than SDE, because SDE adds back the full owner comp while EBITDA only adds back the excess. For a business with $100K owner comp add-back, EBITDA would be $100K lower than SDE.
Can the same business be valued on both?
Yes, and it often is. The 2026 M&Apedia multiples data shows sub-$1M businesses in home services trading at 2–4× SDE, which usually implies 4–6× EBITDA on the same business — the numbers reconcile.