Are Sellers Disc. Earnings (SDE) equal to EBITDA?

September 21, 2022

by a searcher from Northeastern University in Miami, FL, USA

Recently started my search and currently receiving weekly broker listings. Wondered if the above was a safe assumption, or if there's a possibility it could be EBIT.

Do believe it should be investigated regardless.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would agree with the above, they are different. The problem with SDE is that in many cases 100% of any "personal expenses" of the seller will be added back. These sometimes include expenses that are very hard to verify, and it also typically includes 100% of seller salaries & wages. You need to then make adjustments for a fair market salary for you or someone else to manage the business. You also often need to make adjustments for future capital expenditure needs if they have just added back 100% of depreciation and the company has typical capital equipment, software, or development needs. I hope this information helps.

Reply by a searcher
from University of Pennsylvania in Ambler, PA 19002, USA

Hi Manuel, typically SDE would be the EBITDA plus seller salary plus any additional items paid for by the business for the owner, but not required in the business such as a car, phone, etc.

Valuation multiples on SDE would be different from EBITDA multiples. SDE would typically be used when the earnings are less than $1M.

Here is a link to a good blog article that explains the difference for you if you want to read more: https://www.midstreet.com/blog/sde-vs-ebitda#

Hope that helps clarify,

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