What SDE is trying to show
Seller's Discretionary Earnings is commonly used for smaller owner-operated businesses. Conceptually, it starts from profit and adds back certain owner-specific or non-recurring items to estimate the economic benefit available to one owner-operator.
What EBITDA is trying to show
EBITDA focuses on earnings before interest, taxes, depreciation and amortization and generally leaves market-rate management or labor costs in the business. It is more common as companies become less owner-dependent.
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Why the same business can show different numbers
If the owner performs meaningful work without a market-rate salary, SDE may add owner compensation back while an EBITDA-style view may need to include replacement management cost.
The danger of aggressive add-backs
Every add-back should have a reason and evidence. Recurring software, advertising, contractor or maintenance expenses usually remain real costs simply because a seller would prefer a higher earnings number.
Use the measure that matches the buyer
An individual buyer intending to operate the business personally may think differently from a strategic acquirer that must hire management. The earnings base should reflect the actual post-close operating model.
Do not compare multiples across inconsistent bases
A 4x SDE valuation and a 4x EBITDA valuation are not equivalent if the underlying earnings definitions differ materially. Always confirm the base before discussing the multiple.