EBITDA vs Seller’s Discretionary Earnings: What Sellers Must Understand
EBITDA vs Seller’s Discretionary Earnings
EBITDA vs Seller’s Discretionary Earnings: What Sellers Must Understand
EBITDA and Seller’s Discretionary Earnings (SDE) are two of the most important metrics used to evaluate business performance. Understanding the difference is essential for accurate valuation. EBITDA measures operational profitability before certain expenses, while SDE adds back owner-specific costs to show true owner benefit.
Small businesses are often valued using SDE because owners typically run personal expenses or one-time costs through the business. Mid-market and larger companies, however, rely on EBITDA as the gold standard for assessing financial health and valuation multiples.
Preparing clean financials, documenting add-backs, and clarifying discretionary expenses help buyers understand the real earning power of the business. Sellers who manage this process effectively achieve higher valuation multiples and smoother negotiations.
Professional guidance ensures these numbers are presented accurately and credibly during due diligence.
