The Two Key Metrics: SDE and EBITDA
Most small and mid-sized businesses are valued as a multiple of earnings. The two most common metrics are SDE and EBITDA. Which one applies depends on your business size and structure.
SDE (Seller's Discretionary Earnings)
Best for: Owner-operated businesses under $5M revenue
Typical multiples: 2.0x - 4.5x
EBITDA
Best for: Larger businesses with professional management
Typical multiples: 4.0x - 10.0x
What Drives Valuation Multiples
Not all businesses with the same earnings are worth the same. Several factors push multiples higher or lower.
Value Drivers (Higher Multiple)
Value Detractors (Lower Multiple)
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Valuation Multiples by Industry
Multiples vary significantly across industries based on growth potential, recurring revenue, and buyer demand. Here are typical ranges for common industries.
Home Services
| Industry | SDE Multiple | EBITDA Multiple |
|---|---|---|
| HVAC | 2.5x - 4.5x | 4x - 7x |
| Plumbing | 2x - 4x | 3.5x - 6.5x |
| Electrical | 2.5x - 4.5x | 4x - 7x |
| Roofing | 2x - 4x | 3.5x - 6x |
| Landscaping | 1.5x - 3.5x | 3x - 5.5x |
| Pest Control | 3x - 5.5x | 5x - 8.5x |
Healthcare
| Industry | SDE Multiple | EBITDA Multiple |
|---|---|---|
| Dental Practice | 2.5x - 5x | 4.5x - 8x |
| Veterinary Practice | 3x - 6x | 5x - 9x |
| Urgent Care | 3x - 6x | 5x - 9x |
| Home Health | 2.5x - 5.5x | 4.5x - 8.5x |
| Physical Therapy | 2.5x - 4.5x | 4x - 7x |
Professional Services
| Industry | SDE Multiple | EBITDA Multiple |
|---|---|---|
| Accounting & CPA | 1x - 2x | 3x - 6x |
| MSP / IT Services | 3.5x - 7x | 6x - 11x |
| Staffing & Recruiting | 2x - 5x | 4x - 8x |
| Marketing Agency | 2x - 5x | 4x - 8x |
Manufacturing
| Industry | SDE Multiple | EBITDA Multiple |
|---|---|---|
| Precision Manufacturing | 3x - 6x | 5x - 9x |
| Food Manufacturing | 3x - 6x | 5x - 9x |
| Industrial Manufacturing | 3x - 6x | 5x - 8.5x |
Frequently Asked Questions
What is the difference between SDE and EBITDA?
SDE (Seller's Discretionary Earnings) includes owner salary and benefits, making it ideal for owner-operated businesses. EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) is used for larger businesses with professional management where owner compensation is already at market rate.
Why do multiples vary so much by industry?
Multiples reflect perceived risk and growth potential. Industries with recurring revenue (pest control, MSPs) command higher multiples. Industries with low barriers to entry or high owner dependency trade at lower multiples. Buyer demand also affects multiples.
How do I calculate my business's SDE?
Start with net income from your tax return. Add back: owner's salary and benefits, depreciation and amortization, interest expense, one-time expenses, personal expenses run through the business, and any above-market rent paid to yourself.
Should I get a professional valuation?
For businesses over $1M in value, a professional valuation from a certified appraiser can help with negotiations, financing, and tax planning. For smaller businesses, industry multiples and broker opinions often suffice.