SDE vs. EBITDA Multiples?

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November 12, 2025

by a searcher from Brown University in New York, NY, USA

I’m trying to clarify how valuation multiples are usually applied in small business acquisitions versus larger, PE-backed deals. My current understanding is that in "smaller" deals, sellers and brokers often quote valuation multiples based on SDE (i.e., EBITDA plus the owner’s salary and personal add-backs). However, when it comes time to actually sell or model out returns, do buyers and investors (especially private equity) continue to use SDE, or do they shift to a true EBITDA basis, with a market-rate owner salary baked in as an expense? Also curious if anyone has a sense of around what size or threshold buyers typically shift from valuing on SDE to valuing on EBITDA.
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Reply by a searcher
from University of California, Los Angeles in London, UK
I agree with comments above that with SDE you're basically buying a job. It's a mechanism to remove the owner/CEO's compensation from the results to make it look better than reality, e.g. instead of showing zero EBITDA/cash flow they'll say SDE is 250k, and then you're basically buying yourself a job paying 250k. If you install an external CEO, the business is back to zero EBITDA, and this is how investors will value it.
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Reply by a professional
in New York, NY, USA
On smaller deals under 2 million in revenue, I find that using SDE inflates the purchase price. EBITDA is typically better in my opinion. If you're seeing a company with SDE. just look Realize you're buying a high paying job (if that) where you'll be working a lot and have to pay off a loan with both interest and principal payments. In my QoE reports i show both numbers. email me for a qoe redacted
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