Buyer's Guide · Buying a business
EBITDA vs SDE: which one actually prices the deal?
SDE (seller's discretionary earnings) is what a single owner-operator actually takes home: net profit plus the owner's salary and personal add-backs. EBITDA (earnings before interest, taxes, depreciation, and amortization) strips out financing and accounting choices but does NOT add back an owner's salary. For small, owner-operated businesses like a gas station or convenience store, the price is set on SDE; EBITDA only takes over once a business is large enough to run on hired management. Use the wrong one and the valuation can move by six figures.
SDE: seller's discretionary earnings
SDE (seller's discretionary earnings) is the total financial benefit a single owner-operator pulls out of the business in a year. You build it from net profit, then add back the owner's salary, plus any personal or one-time expenses run through the business: health insurance, a personal vehicle, one-off legal fees, and so on.
It exists for one reason: to let you compare apples to apples. Every owner pays themselves differently and runs different personal expenses through the business. SDE normalizes all of that so you can compare two businesses, or compare the asking price to reality.
Want the full build, with a worked example? How SDE is calculated →
EBITDA: earnings before interest, taxes, depreciation & amortization
EBITDA (earnings before interest, taxes, depreciation, and amortization) starts from operating profit and adds back four things that have nothing to do with the underlying operation: interest (a financing choice), taxes (an entity choice), and depreciation and amortization (non-cash accounting entries).
What EBITDA does NOT add back is the cost of running the place, including a manager's salary. That's the whole point: EBITDA asks "what does this business earn after paying someone to operate it?" That's the right question for a buyer who will hire a manager, and the wrong question for a buyer who will stand behind the counter themselves.
The one difference that matters: the owner's salary
| SDE | EBITDA | |
|---|---|---|
| Owner's salary | Added back (you take it home) | NOT added back (a manager is paid) |
| Best for | Owner-operated small businesses | Manager-run / larger businesses |
| Typical use | Gas stations, c-stores, most Main Street deals | Lower-middle-market and up |
| The question it answers | What will I personally take home? | What does the business earn on its own? |
A worked example: same business, two numbers
Take a station whose books, after add-backs, show $200,000 of SDE, the owner's real take-home. Now ask the EBITDA question: what would it earn if you paid a manager to run it instead of standing there yourself? Subtract a market-rate manager's salary of, say, $70,000, and EBITDA is roughly $130,000.
Same business, two very different numbers ($200,000 vs $130,000), and the gap is exactly the owner's salary. At a 2.0× to 3.5× multiple, that $70,000 difference becomes a $140,000 to $245,000 swing in the fair price.
If you're buying a job (standing behind the counter), you care about the $200,000, because that's what lands in your pocket. If you're buying an investment to run with hired staff, you care about the $130,000: what's left after paying that staff. Most first-time small-business buyers are doing the former, which is why these deals are priced on SDE.
How the confusion gets used against you
The gap between SDE and EBITDA is large enough that mixing them up, by accident or on purpose, quietly inflates a price. The two moves to watch for: a seller quoting an SDE-sized number while calling it EBITDA (implying the figure survives paying a manager when it doesn't), or applying a larger, EBITDA-style multiple to an SDE-sized number. Either way, the fix is the same: confirm which metric is on the table, and rebuild it yourself from the tax returns and P&L rather than trusting the label.
That's a small slice of a bigger pattern. See the 10 ways sellers inflate a P&L →
Not sure which number your deal is really priced on?
Upload the seller's P&L, tax returns, and bank statements, and BizScore rebuilds the real SDE, applies the right multiple, compares it to the asking price, and flags where the numbers don't add up, each backed by the exact document it came from.
Frequently asked
- What's the difference between EBITDA and SDE?
- The owner's salary. SDE (seller's discretionary earnings) adds the owner's salary and personal add-backs back into profit, because a single owner-operator takes that money home. EBITDA does not add back an owner's or manager's salary; it measures what the business earns after paying someone to run it.
- Should I value a gas station or convenience store on EBITDA or SDE?
- On SDE. These are owner-operated small businesses, and the market prices them on a multiple of SDE plus inventory. EBITDA becomes the right metric only when a business is large enough to run on full-time hired management, where the buyer is a passive owner.
- Why does it matter which one I use?
- Because the gap between them is the owner's salary (often $60,000 to $80,000) and that gap gets multiplied. At a 2.0× to 3.5× multiple, mislabeling SDE as EBITDA (or vice versa) can move the fair price by six figures.
- Can a seller quote EBITDA to make the business look bigger?
- It can cut both ways, which is exactly why confusion is dangerous. A seller may quote SDE while calling it EBITDA to imply the figure survives paying a manager, or apply an EBITDA-sized multiple to an SDE-sized number. Always confirm which metric is on the table and rebuild it from the documents.
About this guide
BizScore is built by first-time business buyers — people who watched someone close to them lose their life savings on a deal that looked clean on a spreadsheet and fell apart in the documents the seller never volunteered. That experience is why these guides exist, and why every BizScore report cites the exact document behind each finding.
Where the numbers come from: the benchmark ranges in our guides — SDE multiples, expense ratios, typical timelines — are widely-used industry rules of thumb, cross-checked against the analytical benchmarks BizScore applies inside its reports. Dollar figures such as a ~$15,000 quality-of-earnings review or a $5,000 deal attorney are representative of what buyers typically pay, not quotes; actual costs and multiples vary by deal. We review these figures periodically — last updated June 2026.
BizScore is an information service — think of it as a Carfax for a small business — not a CPA, an attorney, or financial advice. Use it to decide where to spend your professional dollars, and bring in a qualified professional before you sign anything.
This guide is general education, not a formal business appraisal or financial, legal, or tax advice. Every deal is different. Verify against the actual documents and talk to a qualified professional before you sign anything.