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EBITDA

EBITDA does NOT add back owner salary — it assumes the business pays a manager to run it. This is the key difference from SDE. EBITDA is used by private equity firms, strategic acquirers, and lenders (SBA loans) to evaluate businesses above ~$1M in annual earnings. Because EBITDA is smaller than SDE for the same business (it doesn't include owner pay), EBITDA multiples are numerically higher than SDE multiples for the same valuation.

Example

If SDE is $500K (including $150K owner salary), EBITDA is $350K. At 3x SDE = $1.5M. At 4.3x EBITDA = $1.5M. Same valuation, different metric.

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