What actually separates them
Both figures start in the same place: your reported profit, with interest, tax, depreciation and amortisation added back. From there they diverge on a single question, which is how a buyer will treat the owner’s own pay.
SDE (seller’s discretionary earnings) adds back one working owner’s full salary, pension and benefits, on the assumption that a buyer will step in and run the business themselves. EBITDA does not. EBITDA treats the cost of running the business, including a market-rate salary for whoever leads it, as an ongoing cost that continues after the sale. The gap between the two numbers is, in effect, one owner’s total remuneration package.
That single difference cascades. Because SDE adds a salary back, it always produces a larger headline figure than EBITDA for the same business. It does not follow that SDE makes the business worth more. Smaller, owner-operated businesses valued on SDE typically attract lower multiples than larger businesses valued on EBITDA, precisely because they depend so heavily on the person leaving. The two are internally consistent systems, and the most expensive mistake owners make is mixing them: applying an EBITDA multiple to an SDE figure, or the reverse, can misstate a valuation by a wide margin.
Which one applies to a business your size
There is no universal revenue line that separates the two, and any adviser who quotes a fixed threshold as if it were a rule is overstating the case. The honest answer is that the basis follows the operating reality of the business and the buyer it is likely to attract.
As a rough orientation, a business that genuinely runs on one owner’s own labour tends to be valued on SDE, while a business with a management layer that operates without the owner in day-to-day control tends to be valued on EBITDA. Owner-managed businesses in the EUR 2m to 10m revenue range often sit right on that crossover. Some are still, in substance, a single owner doing most of the important work, and will be looked at on SDE. Others have delegated genuinely, carry a real second tier of management, and will be looked at on EBITDA. The number on the top line matters less than who does the work beneath it.
When each fits, and the part to take advice on
SDE fits when the likely buyer is an individual or a small acquirer who will run the business in place of you, when the business depends on your own hours and relationships, and when there is no management team a buyer would keep paying. In that situation, adding your salary back reflects the truth: a new owner-operator recovers that cost by doing the job themselves.
EBITDA fits when the business already stands on a management team, when your role is strategic rather than operational, and when the likely buyer is a trade acquirer or a financial investor who will keep paying that team. Here your salary is a real, recurring cost, because someone has to be paid to do what you do, so it is not added back.
The practical point for anyone still three to five years from a sale is that you have some influence over which basis applies, and it usually pays to earn your way onto the EBITDA side. Building genuine owner independence, a management layer that runs the business without you, is what moves a company from SDE territory to EBITDA territory, and EBITDA-based valuations generally reach a wider pool of buyers at higher multiples. Whichever basis applies, the figure has to be clean and defensible: every add-back documented, personal costs clearly separated, and any second working owner replaced with a market-rate cost rather than quietly assumed away.
One thing neither basis decides is your tax outcome. EBITDA and SDE are lenses for valuing earnings, not the structure of the deal or the tax you pay on the proceeds. How a sale is taxed differs significantly by country and changes over time, and it is often a decisive factor in what you actually keep, so take country-specific advice on structure alongside any valuation work.