BTB Buyer Guide
SDE vs EBITDA When Buying a Business
SDE and EBITDA are both earnings measures, but they answer different questions and can produce very different views of the same company.
BTB guide · Updated September 30, 2026
What buyers should understand
SDE is commonly used for owner-operated small businesses because it may include one owner's compensation and certain discretionary or nonrecurring adjustments. EBITDA removes interest, taxes, depreciation and amortization, but it does not automatically add back owner compensation or every discretionary expense. A buyer should identify which measure a seller or broker is using, reconstruct it from source financials, and avoid applying a valuation multiple to an earnings figure that has not been reconciled.
Practical example
If a business reports $200,000 of seller-stated SDE, that number should not automatically be treated as $200,000 of EBITDA. The difference may include owner compensation and other proposed add-backs. In BTB, keep the seller claim separate from the earnings figure you accept after reviewing the support.
Use this inside BTB
Educational information only. Verify legal, tax, accounting, financing and transaction questions with qualified professionals and current source material.
Related buyer guides
SDE explained · Valuation · Due diligence · Seller financing · Making an offer