Published June 27, 2026 · Updated August 21, 2026
Pedro Oliveira, Founder & Principal, Renova Strategy
When business owners start thinking about selling, one of the first things they want to know is what their business is worth. That’s a completely natural question. And the answer almost always involves two terms that get thrown around a lot and explained very little.
SDE. EBITDA. And then something called a multiple.
Let me break this down the way I wish someone had explained it to me before my first transaction.
SDE stands for Seller’s Discretionary Earnings. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. They sound similar, and they’re related, but they’re used in very different contexts.
SDE is the metric most commonly used for small businesses, typically those under a few million dollars in annual revenue. It takes your net profit and adds back your salary as the owner, along with any personal expenses you’ve run through the business, one-time costs, and non-cash expenses. The idea is to show what the business actually puts in the owner’s pocket, in total, in a year. If a buyer is stepping in to run this business themselves, SDE tells them what they’re really buying.
EBITDA is more commonly used for larger businesses and in more institutional transactions. It strips out interest, taxes, depreciation, and amortization to give a cleaner picture of operating performance. It doesn’t add back owner compensation the same way SDE does, because at a certain size, the assumption is that the owner isn’t running the day-to-day operations and a management team is. You’re buying the business, not the owner’s job.
Which one applies to your business matters. Using the wrong metric, or letting someone frame your business through the wrong lens, can significantly change what your number looks like.
Here’s what I’ve seen trip up sellers more than almost anything else.
They get a valuation, they see a number, and they focus entirely on that number. What they miss is that the number is just the product of two things: your earnings figure and the multiple applied to it. And the multiple is where the real leverage is.
A business doing $500,000 in SDE could be worth $1.5 million at a 3x multiple or $2.5 million at a 5x multiple. Same business. Same earnings. Very different outcome.
So what drives the multiple? This is where it gets interesting, and where preparation pays off most.
Recurring revenue gets a higher multiple than project-based revenue. Businesses that aren’t dependent on the owner get a higher multiple than ones that fall apart if the owner leaves. Diversified customer bases get higher multiples than businesses where one or two clients represent the majority of revenue. Clean financials, documented processes, and a business that can demonstrably operate without you, all of these push the multiple up.
In other words, everything that makes a business a better acquisition also makes it worth more. The multiple is the market’s way of pricing in risk and confidence.
If you are thinking about selling, the most valuable thing you can do before you talk to anyone is understand where your multiple is likely to land and why. Not just what your earnings are, but what a buyer is going to see when they look at the risk profile of your business.
Are you the business? If you left tomorrow, would revenue follow you out the door? That is a multiple killer. Is your revenue predictable, or does it start from zero every January? That affects the multiple. Are your three largest clients responsible for 70% of your revenue? A buyer sees that and prices in the risk.
These are things you can work on. Not overnight, but over the year or two before you go to market. The difference between a 3x and a 5x exit on a meaningful earnings figure is not a small number. It is the difference that preparation makes.
This is one of the first conversations we have with owners who are thinking about a future sale, sometimes years before a transaction actually happens. Because by the time you’re sitting across from a buyer, the multiple is largely already determined by the decisions you made long before that meeting.
If you want to talk through where your business stands, that is exactly what we do.