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What is the full cash flow of your business? SDE and EBITDA from one set of numbers.
Add back the owner's pay and the costs a buyer will not inherit to get SDE, then take out a market-rate manager to get EBITDA.
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Business Calculators / SDE and EBITDA Calculator
SDE and EBITDA Calculator
Total cash benefit to a hands-on owner.
Earnings after a market-rate manager.
How it is calculated
Next steps
Price a business on SDE with the Business Valuation Calculator, and test the financing with the Debt Service Coverage Calculator.SDE follows the standard pre-tax method (one owner's pay added back). EBITDA here is SDE minus a market-rate manager's salary. Have a CPA or an EDGE advisor check your figures before you list.
This calculator produces both cash flow figures buyers use to value a business. SDE is the full yearly benefit a business gives one working owner; it is what most businesses under about $5 million in revenue are priced on. It starts from pre-tax net profit and adds back one owner's pay, owner benefits, depreciation and amortization, interest, and personal or one-time costs.
EBITDA (earnings before interest, taxes, depreciation and amortization) asks a different question: what does the business earn after paying a market-rate manager to run it? SDE assumes the buyer does the owner's job; EBITDA assumes they hire someone. That is the only material difference, so it is derived simply: EBITDA = SDE - Replacement Manager Salary. EBITDA is always the lower number, and it is what larger, management-run businesses and private equity buyers underwrite to.
Questions
SDE and EBITDA Calculator: frequently asked questions
What is the difference between SDE and EBITDA?
Both start from the same recast profit. SDE adds back the full cost of the owner, because it assumes the buyer will do that job. EBITDA keeps a market salary for a manager as a cost, because it assumes the buyer will hire one. Smaller owner-run businesses are priced on SDE; larger ones with a team in place, or those sold to private equity, on EBITDA.
Which profit number do I start with?
Pre-tax net profit (net income before income tax) for a full year, from the tax return or profit and loss statement.
Why does it ask how I paid myself?
A draw is already inside net profit; a payroll salary is an expense and comes back in, with its payroll taxes. Only one owner's pay is added back.
Which add-backs are legitimate?
Documented personal and one-time items: owner perks, a personal vehicle, a one-off legal bill, an unusual repair. Recurring costs called one-time, or anything without records, will be challenged by buyers and lenders.
What is the rent adjustment to market?
If you own the property and charge the business more or less than market rent, the difference is adjusted so the earnings reflect what a buyer will actually pay.
What is a replacement manager salary, and how do I estimate it?
It is the full cost of hiring someone to do what the owner does today: salary, payroll taxes and benefits. Use local job postings for a general manager in your industry, sized to the business.
What if the manager salary is bigger than my SDE?
Then EBITDA is negative, and the business only works with an owner in the seat. That is common for smaller businesses, and it simply means it should be priced and marketed on SDE.
Which number should I use with buyers and lenders?
Use SDE for an individual buyer who will run the business. Use EBITDA for a buyer who will hire management or already owns similar companies. An EDGE advisor will present the one that fits the buyer.
Is this an appraisal or financial advice?
No. It is an educational estimate based on what you enter.
Next Step
Put these numbers to work on a real deal.
Buyer's EDGE is free: save target businesses, model each deal in the Acquisition Center and learn the process in Acquisition Academy. Selling? The Seller Portal starts a confidential sale. Either way, an EDGE advisor can help from the first conversation through closing, financing included.