When you start researching how to value a business, you quickly run into two acronyms that seem to do the same job: EBITDA and SDE. Both are measures of earnings, both are multiplied by a sector figure to reach a valuation, and both appear in broker reports and buyer offers. But they are not interchangeable, and using the wrong one can swing your valuation by a wide margin.

This guide explains the difference in plain terms, shows you which method fits your business, and works through an example so you can see how the choice changes the result. To apply the right method to your own numbers, use our SME valuation calculator.

What is EBITDA?

EBITDA stands for earnings before interest, tax, depreciation, and amortisation. You reach it by taking net profit and adding back those four items. It measures the underlying cash-earning power of the business, independent of how it is financed or how its assets are depreciated.

Crucially, EBITDA assumes the business pays a market-rate manager to run it. It does not add back the owner's full salary — only the portion that is above what a hired manager would cost. EBITDA is the right measure when the business is large enough that the owner is not personally essential to daily operations.

What is SDE?

SDE stands for seller's discretionary earnings. It starts from the same place as EBITDA but goes one step further: it adds back the owner's entire salary and benefits, not just the above-market portion. SDE answers the question, “how much money does this business put in the pocket of a single owner-operator who works in it full time?”

SDE is the right measure for smaller, owner-operated businesses — the café where the owner is also the manager, the consultancy that is really one person and a laptop. In these businesses, separating the owner's “wage” from the business's “profit” is artificial, because they are the same person.

The key difference: the owner's labour

The single difference between the two is how they treat the owner's own work. EBITDA assumes you hire someone to do your job and counts only the profit left over. SDE counts that profit plus the value of your own labour.

This means SDE is always a larger number than EBITDA for the same business. To compensate, SDE multiples are lower than EBITDA multiples. A business might sell for 2.5x SDE or 4.0x EBITDA and arrive at a similar price. Comparing an SDE multiple directly against an EBITDA multiple, without adjusting, is a common and costly mistake.

Which method fits your business?

As a rough guide:

  • Use SDE if your business is owner-operated, you work in it full time, and your adjusted earnings are below roughly S$750,000 a year. The buyer is most likely another owner-operator.
  • Use EBITDA if your business has a management team, runs without your daily involvement, and earns above roughly S$1,000,000. The buyer is most likely a company or an investor who will install professional management.

Businesses in the middle can be valued either way, and a good advisor will often present both to see which paints the more compelling — and more defensible — picture for the type of buyer you are targeting.

A worked example

Imagine a business with S$200,000 of net profit, where the owner pays themselves a S$250,000 salary to run it. A market-rate manager would cost S$120,000.

  • EBITDA: S$200,000 profit + S$130,000 above-market salary add-back = S$330,000. At a 4.0x EBITDA multiple, that is a valuation of S$1.32M.
  • SDE: S$200,000 profit + S$250,000 full salary add-back = S$450,000. At a 2.9x SDE multiple, that is a valuation of S$1.31M.

Both methods land in the same place — as they should, because it is the same business. The lesson is not that one method gives a higher answer; it is that the multiple has to match the earnings measure. Mix them up — apply a 4.0x EBITDA multiple to an SDE figure — and you would overvalue this business by nearly 40 percent.

How this connects to your industry multiple

The sector multiples you see quoted — single-outlet F&B at 2x to 3.5x, services at 3x to 5x, technology at 5x to 9x — are almost always EBITDA multiples, used for established businesses. You can explore them in our guide on business valuation multiples by industry in Singapore. For the full step-by-step valuation method, see how to value a business in Singapore.

Frequently asked questions

What is the difference between EBITDA and SDE?

EBITDA is used for larger SMEs where the owner is not essential to daily operations and counts only the above-market portion of the owner's salary as profit. SDE adds back the owner's full salary and benefits and is used for smaller, owner-operated businesses. SDE multiples are lower than EBITDA multiples because the SDE figure includes the value of the owner's own labour.

Is EBITDA or SDE better for valuing my business?

Neither is universally better — the right choice depends on size and how owner-dependent the business is. Smaller, owner-operated businesses are usually valued on SDE; larger businesses with a management team are valued on EBITDA. Many advisors present both.

Why are SDE multiples lower than EBITDA multiples?

Because SDE is a larger earnings figure — it includes the owner's full salary as well as profit. To reach a comparable valuation, a lower multiple is applied to that larger number.

Not sure which method applies to you? The free valuation calculator gives you an instant indicative range, and The Funding Assembly can advise on the right approach for your business — get in touch for a confidential conversation.