SDE vs EBITDA: which profit number buyers use for your store

Short answer. SDE (seller's discretionary earnings) is the profit one owner-operator takes out of the business, before their own pay and personal costs. EBITDA assumes a paid manager runs it. Smaller owner-run stores are usually valued on SDE, larger brands with a team on EBITDA, and the two numbers take different multiples.

Key takeaways

• SDE answers "how much does this business pay the one person who runs it?"
• EBITDA answers "how much does this business earn after everyone, including a manager, is paid?"
• For the same store, SDE is higher than EBITDA, so a multiple heard for one doesn't apply to the other.
• Both start from your real profit and add back items a buyer won't inherit, but only with evidence.
• The mistake that costs most: comparing your SDE with an EBITDA multiple you read about bigger companies.

Why do buyers need a special profit number at all?

Because your accounting profit isn't built for a buyer. It's built for your tax return.

Your net profit is reduced by things a new owner won't pay: your salary, your car, interest on a loan they won't take over, the one-off cost of moving from one 3PL to another. It may also be flattered by things that will cost the buyer money, like the hours you work for free.

So buyers normalise. They start from the profit in your accounts, add back what won't continue, subtract what's missing, and land on a number that describes the business as it would run in their hands. SDE and EBITDA are two ways of doing that, built for two kinds of buyers.

What is SDE?

Seller's discretionary earnings is the total financial benefit the business gives to one full-time owner-operator in a year. It starts from pre-tax profit and adds back:

• one owner's full pay, including benefits paid through the business;
• personal expenses the business pays for that owner;
• interest, depreciation and amortisation;
• one-off and non-operating items, like a legal dispute that's closed or the sale of an old van.

SDE is the natural number for a store where the buyer will do your job. It tells them how much the business will pay them for running it, before they decide how much salary to take.

What is EBITDA?

EBITDA is earnings before interest, taxes, depreciation and amortisation. In a sale it's almost always "adjusted EBITDA": the same clean-up of one-off and personal items, but with one big difference. EBITDA assumes the business pays a market salary to whoever runs it.

That's the right lens for buyers who won't run the store themselves. A fund or an aggregator buying several brands needs to know what's left after paying the people who do the work, including a manager in your seat.

SDE vs EBITDA: a worked example (illustrative)

The figures below are illustrative, to show the mechanics. They're not benchmarks.

A founder runs a Shopify brand alone with two freelancers. The accounts for the last 12 months show:

SDE = 40,000 + 30,000 + 4,000 + 3,000 + 500 + 1,000 = €78,500.

For adjusted EBITDA, a buyer starts from the same clean figure but deducts what it would cost to pay someone to do the founder's job. Say the buyer estimates that at €45,000 a year for this business. Adjusted EBITDA = 78,500 − 45,000 = €33,500.

Same store, same year. One number is more than twice the other. Neither is wrong. They just answer different questions, and each comes with its own multiple.

Which one will a buyer use for my store?

It depends on who's buying and how the business runs.

SDE is usually the starting point when:

• you run the store yourself, or almost;
• the likely buyer is an individual or a small operator who will step into your role;
• there's no management layer to inherit.

EBITDA is usually the starting point when:

• there's a team that runs day-to-day operations without you;
• the likely buyers are funds, aggregators or companies in your industry;
• the profit is large enough that the buyer will hire someone rather than work in it themselves.

There isn't a fixed line where one stops and the other begins. A good valuation shows both, explains which one the likely buyers will use, and doesn't mix them.

What are the most common SDE and EBITDA mistakes?

Applying the wrong multiple

You'll read about companies "selling at X times EBITDA". If you then apply that multiple to your SDE, you're multiplying a bigger number by a figure meant for a smaller one. The result looks great and has nothing to do with what a buyer will pay.

Adding back two salaries

SDE adds back the pay of one owner-operator. If two founders work full time, the second one is a job that someone will need to do, so a buyer treats it as a cost.

Adding back costs that will continue

Your ad agency, your customer service freelancer, the software you "could cancel": if the business needs them to keep its revenue, they stay. Add-backs are for costs a new owner really won't have. Our guide to add-backs goes through the grey areas.

Forgetting the negative adjustments

Normalising works both ways. If your partner does customer service for free, or you rent a stockroom from a relative below market rate, a buyer will add the real cost back in. Better to show it yourself than have it found.

Building it on dashboard revenue

Both SDE and EBITDA start from profit, and profit starts from revenue. If the revenue is Shopify gross sales instead of cash actually collected, everything below it is inflated. A clean monthly P&L fixes that at the source.

How do buyers check the number?

They rebuild it. Expect them to ask for:

• monthly P&L for 12 to 24 months;
• bank statements and payment processor payouts that reconcile with it;
• ad invoices from each platform;
• supplier invoices, freight and duties;
• evidence for each add-back: the invoice, the bank line, a one-line reason.

In larger deals, buyers often commission a quality of earnings review from an accounting firm. The principle is the same at any size. A number that reconciles with the bank is worth more than a bigger number that doesn't.

So which number should I put in front of a buyer?

Put the one they'll use, built in a way they can check. For most founder-run Shopify brands that means SDE, with a clear schedule of add-backs and the market cost of your role shown next to it, so a buyer who thinks in EBITDA can get there in one line.

If you want to see both numbers for your own store, request a free valuation. We read 12 to 24 months of numbers and send you a realistic range within 24 hours, with zero upfront costs and no commitment to sell. For the bigger picture of how the profit figure turns into a price, see how much is my Shopify store worth.