What is the difference between SDE and EBITDA?

Last updated: 2026-04-13

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What is the Difference Between SDE and EBITDA?

SDE (Seller’s Discretionary Earnings) and EBITDA are different profit metrics used in M&A valuations. SDE includes owner salary, benefits, and one-time personal expenses added back to net income—typically used for businesses valued under $5M. EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) excludes those owner adjustments and is the standard metric for larger deals. For a home services company with $2M net income, $150K owner salary, and $50K personal expenses, SDE would be $2.2M while EBITDA might be $2.05M. Buyers use whichever metric aligns with the business size and their acquisition model.

SDE: The Owner-Adjusted Metric

SDE starts with net income and adds back discretionary owner expenses. This includes:

• Owner salary (whether excessive or below-market)
• Owner benefits (health insurance, vehicle, phone)
• One-time personal expenses (travel, meals, dues)
• Non-recurring costs (lawsuit settlements, relocation)

In home services M&A, this matters significantly. A plumbing company owner might pay themselves $200K annually while a buyer could operate with a $100K manager. SDE captures that $100K add-back, reflecting the actual cash available to the new owner. Typical SDE adjustments in home services range from $50K to $300K depending on the business.

EBITDA: The Standardized Approach

EBITDA removes interest, taxes, depreciation, and amortization—but doesn’t adjust for owner discretionary items. It represents operating earnings before capital structure and accounting methods distort the picture.

EBITDA is preferred for:

• Larger acquisitions ($10M+ enterprise value)
• PE portfolio companies with multiple add-ons
• Businesses with significant debt or asset bases
• Cross-industry comparisons

Which Metric Gets Used in Home Services M&A?

Business size determines the metric. A 20-person HVAC company generating $3M revenue typically sells on SDE multiples (4-6x SDE). A regional 200-person plumbing platform with $25M revenue uses EBITDA multiples (8-12x EBITDA).

Mixed situations exist. A $8M revenue electrical contractor might be valued at 5.5x SDE ($1.5M) by a search fund, but a PE firm acquiring it as a platform add-on could use EBITDA multiples with different adjustments. The buyer’s acquisition strategy (bolt-on vs. standalone, debt-financed vs. all-cash) drives the metric choice.

The Adjustment Difference

The practical gap: SDE typically runs 5-15% higher than EBITDA for owner-operated home services businesses because it includes legitimate owner compensation that a new owner won’t pay themselves at the same rate. This isn’t manipulation—it’s recognizing different operational structures.

What This Means for You

Knowing which metric applies to your business affects valuation significantly. A $2M SDE company at 5x multiple values at $10M. The same business at 3.5x EBITDA (if EBITDA is $1.8M) values at $6.3M. Before engaging with buyers or advisors, clarify which metric they use and why. CT Acquisitions matches home services owners with buyers using transparent valuation methodologies—ensuring you understand exactly how your business is being evaluated.

FAQ: Can I Increase My SDE Before Selling?

Yes, legitimately. Documenting recurring owner expenses creates add-backs (health insurance, equipment, professional services). One-time expenses already get added. What doesn’t work: fabricating false expenses or creating items that a new owner would incur anyway. Buyers verify adjustments closely. The best approach: operate cleanly for 2-3 years pre-sale and document everything. Legitimate SDE growth comes from improving margins, not accounting creativity.

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