SDE vs. EBITDA
One of the most important concepts in business valuation is understanding the difference between SDE and EBITDA.
The same business can be interpreted very differently depending on the type of buyer reviewing it.
An owner-operator may evaluate a company based on Seller’s Discretionary Earnings (SDE) because they plan to step directly into the business and replace the owner’s role.
An investor, family office, or private equity group may instead evaluate that same company using EBITDA because they are viewing the business as an investment that must support management independently of the owner.
That distinction alone can significantly impact how value is discussed in the market.
Understanding how buyers interpret earnings is one of the most important parts of preparing a business for sale.
— Denise S. Houghtaling
Southern Country Business Advisors
Built. Scaled. Sold.
“The market is tough right now.”
I keep hearing people say:
“The market is tough right now.”
That’s only partially true.
What I’m seeing is that good businesses are still selling.
In many cases, they’re selling for strong multiples and attracting multiple buyers.
The businesses struggling aren’t necessarily bad businesses.
They’re simply not prepared.
Today’s buyers are asking tougher questions:
• Can the business run without the owner?
• Are the financials clean and believable?
• Are the customers diversified?
• Are systems documented?
• Is the asking price supported by the numbers?
A few years ago, buyers were often willing to overlook weaknesses.
Today, they have options.
And when buyers have options, they become selective.
The owners receiving the strongest offers aren’t always the largest businesses.
They’re often the businesses that create the most confidence.
That’s why I tell owners:
Don’t prepare to sell when you’re ready to exit.
Prepare 1-3 years before.
The businesses that command the highest values are rarely perfect.
They’re simply prepared.
Good businesses still sell.
Prepared businesses sell faster, smoother, and often for more.
— Denise S. Houghtaling
Southern Country Business Advisors
Built. Scaled. Sold.
