SDE vs. EBITDA calculator
One P&L, Two Earnings Numbers — See Both, and the Bridge Between Them
The same business shows one profit figure to a Main Street buyer and a smaller one to a private-equity buyer — and both are computed honestly. Enter the P&L lines once and get SDE, EBITDA, and adjusted EBITDA, with every add-back on the table and a read on which figure applies at your size.
From the P&L
Three lines off the tax return or P&L. These build EBITDA — both definitions start here.
The bottom line before income taxes. Starting pre-tax means the “T” in EBITDA is already handled. A loss? Enter it as a negative number.
Interest on business loans, lines of credit, and credit cards. Added back under both definitions.
Non-cash expenses from the tax return or P&L. Added back under both definitions.
Owner & one-time adjustments
These carry EBITDA to SDE. They’re what makes SDE the bigger number — and why the two figures aren’t interchangeable.
Salary, payroll taxes, and benefits for one full-time owner-operator. SDE adds this back; EBITDA does not — this is the main gap between the two figures.
Non-business spending paid by the business — a personal vehicle, family phone plans, personal travel.
Costs that won't repeat — a lawsuit, a flood repair, a one-off equipment move.
Income that won't repeat — a grant, an insurance payout, a one-off asset sale. Subtracted.
The management test
Larger buyers don’t run the business themselves — they subtract what a manager would cost. That turns SDE into adjusted EBITDA.
Total annual cost — salary, payroll taxes, benefits — to hire someone to do the owner’s job in your market.
SDE and EBITDA
Enter the P&L lines — both earnings figures and the bridge between them appear here.
Enter a replacement salary above to see adjusted EBITDA — the figure larger buyers actually use.
Every add-back should be provable from the tax return — buyers and lenders discount what they can’t verify. Informational only, not professional advice or an opinion of value.
Methodology
Both figures are computed from the definitions in their primary sources, not from rules of thumb. EBITDA — earnings before interest, taxes, depreciation, and amortization — follows the definition in the SEC’s non-GAAP financial measures rule, SEC Release No. 33-8176. Because the calculator starts from pre-tax net profit, the tax add-back is already reflected; only interest and depreciation & amortization are added on top. SDE — Seller’s Discretionary Earnings — follows the IBBA’s published definition: EBITDA plus one owner’s entire compensation, personal expenses paid by the business, and one-time expenses, minus one-time income. The full line-item version of that add-back schedule lives in the SDE worksheet.
Adjusted EBITDA is computed as SDE minus the market-rate annual cost of a full-time manager replacing the owner — the standard bridge between the two conventions, since the only structural difference between SDE and a normalized EBITDA is whose salary is in the expense column. The replacement salary is your input, not our estimate: it varies too much by role and market to bake in.
The “which figure applies” read uses the segmentation convention of the IBBA & M&A Source, Market Pulse Report, the quarterly survey of business brokers and M&A advisors that reports Main Street deals — businesses valued under $2,000,000 — as multiples of SDE and lower-middle-market deals ($2,000,000 to $50 million) as multiples of adjusted EBITDA. To place a business against that line without asking for a price, the calculator multiplies your SDE by the lowest and highest published industry SDE multiples on our sourced table and checks where the implied value band falls.
Limits
- EBITDA here is as reported — straight off the P&L, before any normalization. Buyers quoting “EBITDA” on a small deal usually mean adjusted EBITDA; make sure you’re comparing the same figure.
- The $2,000,000 Main Street line is a reporting convention of one (well-regarded) survey, not a rule. Deals near the line get priced both ways, and whether the buyer will operate the business personally matters more than the threshold.
- The implied-value band leans on multiples from completed Main Street sales; applying them to a business that turns out to be lower-middle-market size is an extrapolation, which is why the read is a placement against the line, not a valuation.
- Every add-back should be provable from the tax return. Buyers, lenders, and their accountants discount add-backs they can’t verify — an SDE figure built on soft add-backs won’t survive diligence.
- SDE adds back only one owner’s compensation. If two owners work the business full-time, the second owner’s role has to be restated at replacement cost — the worksheet handles that case.
Sources: U.S. Securities and Exchange Commission, Conditions for Use of Non-GAAP Financial Measures (Release No. 33-8176); International Business Brokers Association (IBBA), Glossary of Business Brokerage Terms; IBBA & M&A Source, Market Pulse Report
Last reviewed: July 2026. This calculator is informational only — not professional advice, an appraisal, or an opinion of value.
Frequently asked questions
What is the difference between SDE and EBITDA?
Both start from the same P&L and add back interest, taxes, depreciation, and amortization. The difference is the owner: SDE also adds back one full-time owner-operator's entire compensation — salary, payroll taxes, benefits — plus personal expenses run through the business and one-time items. EBITDA leaves the owner's pay in as an expense. For an owner-operated business the gap between the two figures is roughly the owner's total compensation package, which is why SDE is almost always the larger number.
Why do small businesses sell on SDE instead of EBITDA?
Because the typical Main Street buyer is an owner-operator who will step into the seller's job. SDE measures the total economic benefit available to that person — profit plus the salary and perks the job pays. A larger buyer who plans to hire a manager has to fund that manager's salary out of the same earnings, so they price on adjusted EBITDA instead. Same business, different buyer, different figure.
At what size does a business switch from SDE to EBITDA pricing?
The convention the IBBA & M&A Source Market Pulse Report uses: "Main Street" deals — businesses valued under $2,000,000 — are reported as multiples of SDE, while lower-middle-market deals ($2,000,000 to $50 million in enterprise value) are reported as multiples of adjusted EBITDA. The line isn't a law; deals near it get argued both ways, and what really moves the convention is whether the buyer will run the business personally or hire management.
What is adjusted EBITDA, and how do I convert SDE to it?
Adjusted EBITDA is EBITDA normalized for one-time items and for owner compensation restated to a market rate. The practical bridge from SDE: subtract the full annual cost — salary, payroll taxes, benefits — of hiring a manager to do the owner's job. A business with $400,000 of SDE and an $80,000 replacement manager shows $320,000 of adjusted EBITDA. Since multiples applied to EBITDA are typically quoted higher than multiples applied to SDE, comparing offers means checking which figure each one is built on.
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