Measuring the value of your business with EBITDA and SDE

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is an accounting term used to measure the profitability of a business before expenses for interest, taxes, depreciation and amortization. I am often asked by business owners, “What multiple of EBITDA should I use to determine how much my business is worth?” If your business is an owner-operator enterprise, the answer is generally, “EBITDA should not be used in the valuation of your business; SDE (seller’s discretionary earnings) is the figure that matters.”