Why SDE, not EBITDA?
Most US content about business valuation talks about EBITDA multiples — and for businesses roughly $2M and up, that's the right measure. But for Main Street businesses under about $2M — the size range most first-time buyers actually target — the market prices deals on Seller's Discretionary Earnings (SDE) instead. It's a different number, not just a different name.
What is SDE?
SDE starts the same way EBITDA does — net income, plus interest, plus depreciation and amortization — but then adds back the owner's entire compensation and benefits, not just the above-market portion. The logic: in a business this size, a single owner-operator does the work. When you buy it, you become that operator, and their full pay becomes part of what you're buying. EBITDA-style "Adjusted EBITDA" instead assumes a market-rate manager keeps running things, and only adds back the excess above what that manager would cost.
Get this backwards and your number is wrong, not just differently labeled — SDE multiples run lower than EBITDA multiples for the exact same business, because SDE is already a bigger number (it includes your future paycheck).
SDE multiples by industry
Based on BizBuySell's closed-transaction dataset for Main Street businesses ($100K–$5M):
| Industry | Median SDE multiple |
|---|---|
| Car washes | 4.99× |
| IT managed services | ~3.28× |
| Manufacturing | 3.03× |
| Home healthcare | 3.00× |
| Insurance agencies | ~2.87× |
| Auto repair | 2.83× |
| HVAC (small) | ~2.81× |
| Dental practices | ~2.76× |
| Construction & trades | 2.62× |
| Retail | 2.61× |
| Professional services | 2.59× |
| Plumbing | ~2.56× |
| Landscaping | ~2.48× |
| Pest control | ~2.43× |
| Accounting & tax | ~2.25× |
| Food & restaurants | 2.24× |
When SDE stops applying
Per the IBBA/M&A Source Market Pulse survey, the earnings measure the market actually uses shifts with deal size, not industry:
| Deal value | Typical multiple | Basis |
|---|---|---|
| Under $500K | 2.0× | SDE |
| $500K–$1M | 2.8× | SDE |
| $1M–$2M | 3.0× | SDE |
| $2M–$5M | ~4.0× | EBITDA |
| $5M–$50M | 4–6.5× | EBITDA |
If this calculator's estimate lands above roughly $2M, treat it as a rough floor — the business has likely grown past the size where SDE is the right measure, and a proper EBITDA-basis valuation (assuming a paid manager stays on) is what buyers and lenders will actually use.
Get the full add-back checklist
This calculator gives you a fast screening number. Create a free account for the detailed add-back checklist, multi-year weighted analysis, and a full report on any deal you're seriously evaluating.
Frequently asked questions
What is SDE (Seller's Discretionary Earnings)?
SDE is the standard earnings measure for valuing US Main Street businesses (roughly under $2M in value). It starts from net income and adds back interest, depreciation, amortization, and the owner's entire compensation and benefits — not just the above-market portion.
What's the difference between SDE and EBITDA?
Adjusted EBITDA only adds back the above-market portion of owner salary, assuming a market-rate manager keeps running the business. SDE adds back the owner's full compensation, assuming the buyer replaces that labor themselves. The two multiples are not interchangeable.
When does a business get valued on EBITDA instead of SDE?
Deals under roughly $2M are typically priced on SDE; above that, buyers and lenders shift to EBITDA. If your estimate here comes out above about $2M, treat it as a rough floor.
How accurate is this calculator?
It's a fast, directional estimate for screening a deal before you invest time in due diligence — not a substitute for a broker opinion, formal valuation, or your own detailed add-back analysis.
Related: Seller's Discretionary Earnings explained · How to buy a business with no money · How to value a business (EBITDA method).