SDE or EBITDA: which number a buyer will use
Two ways of stating what a company earns, and they are not interchangeable. Which one applies to your business, and why the choice is about the buyer.
Both describe what a company earns. They are not interchangeable, and quoting the wrong one makes you look like you have not done this before.
What each one counts
Seller's discretionary earnings assumes the buyer will run the business himself. So your pay goes back in, along with the truck, the phone, and the rest of what the company covers for you. It answers: what would one working owner take home?
Adjusted EBITDA assumes the buyer will hire someone to run it. Your pay does not go back in. A market salary for whoever does your job stays as an expense. It answers: what does this earn without the owner in it?
Say the company earns $600,000 before your compensation and you pay yourself $150,000. SDE is $600,000. If a manager doing your job costs $130,000, adjusted EBITDA is $470,000. Same business, same year, two true numbers.
Which one applies to you
It is decided by the buyer, not by you. An individual buyer with an SBA loan is buying a job and a business, and he thinks in SDE. A regional operator or a private equity platform is buying earnings that continue without you, and it thinks in adjusted EBITDA. Somewhere in the low millions of revenue, most companies cross from the first conversation to the second.
If your business already runs without you day to day, the EBITDA framing usually serves you better, because it shows the earnings do not walk out when you do.
A Straight Answer
Know both numbers for your own company before anyone asks. Quoting SDE to a buyer who underwrites EBITDA does not get you a higher price. It gets you corrected, in the first meeting.
The arithmetic is the easy part. What matters is understanding which buyer you are talking to, because the number that impresses one of them is the number that marks you as unprepared to the other.
BuiltEquity is a sell-side brokerage for trades and field-service companies. Nothing here is legal, tax or accounting advice. Your CPA and your attorney are the authority on your situation.