SDE vs EBITDA
Both measure earnings. Only one of them includes what the owner takes out — and that single difference is why so many valuations go wrong.
Written by the Northland Retail Acquisitions team · Reviewed February 2026
The definitions, plainly
EBITDA is earnings before interest, taxes, depreciation and amortisation. It assumes the business pays a manager to run it, so management cost stays in.
SDE — seller's discretionary earnings — is EBITDA plus one owner's total compensation and personal benefits. It answers the question an owner-operator actually cares about: how much does this business produce for the person running it?
| SDE | EBITDA | |
|---|---|---|
| Owner's pay | Added back in | Left as a cost |
| Typically used for | Owner-operated businesses | Manager-run businesses |
| Relative size | Larger | Smaller |
| Typical buyer | An individual or small operator | A company or group |
A worked example
A store reports net profit of $60,000. The owner pays herself $85,000, runs $9,000 of personal vehicle and phone costs through the business, pays $12,000 of interest on a business loan and books $18,000 of depreciation.
- EBITDA = 60,000 + 12,000 + 18,000 = $90,000
- SDE = 90,000 + 85,000 + 9,000 = $184,000
Same business, two numbers, twice apart. Apply the wrong multiple to the wrong measure and the valuation is out by more than any negotiation could recover.
The deduction people forget
If the owner works full time and a buyer would need to hire someone to replace them, a market wage for that manager must come out before a multiple is applied. Owners often resist this, but it is not a trick — it is simply the cost of the labour that keeps the earnings in place.
Add-backs that hold up, and ones that do not
| Usually accepted | Usually rejected |
|---|---|
| Owner's salary and payroll taxes | Wages for family who genuinely do the work |
| Personal vehicle, phone, travel run through the business | Ongoing costs a buyer will inherit |
| Interest on business borrowings | Reduced rent from a related party, unless adjusted to market |
| Depreciation and amortisation | Maintenance that has simply been deferred |
| Genuine one-off legal or repair costs | 'One-off' costs that appear every year |
Common questions
- Which one applies to my store?
- If one owner-operator runs the business and takes their living from it, SDE is the normal measure. If the business is large enough to run under paid management, EBITDA is more usual.
- Can I apply an EBITDA multiple to my SDE?
- No, and it is a costly mistake. SDE is the larger figure because it includes the owner's compensation, so an EBITDA multiple applied to SDE inflates the value substantially.
- Is an add-back the same as a deduction?
- They work in opposite directions. Add-backs increase the earnings figure by removing costs a buyer will not inherit. Deductions reduce it for costs a buyer will have to carry, such as hiring a manager to replace the owner.
Turn your earnings into a value
A few short questions and a private preliminary range for your business.