Frequently Asked Questions
What is the difference between SDE and EBITDA?
SDE (Seller's Discretionary Earnings) includes owner compensation and is used for businesses under $1M in earnings where the buyer will operate the business. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) excludes owner compensation and is used for larger businesses ($1M+ earnings) where professional management is in place. SDE multiples typically range from 2-4x, while EBITDA multiples range from 3-8x depending on size and industry.
What multiple should I use for a small business valuation?
For businesses with less than $1M in annual earnings, use SDE multiples of 2-4x. For businesses with $1M-$5M in EBITDA, use multiples of 3-6x. For $5M-$20M EBITDA, use 5-8x. The exact multiple depends on industry, growth rate, customer concentration, owner dependence, and recurring revenue. Premium multiples go to businesses with diversified customers, documented processes, and strong growth trajectories.
What are common add-backs in business valuation?
Common add-backs include: owner salary above market rate, personal expenses run through the business (vehicles, travel, insurance), one-time expenses (legal fees, equipment purchases), above-market rent paid to owner-controlled entities, and non-recurring professional fees. Add-backs must be documented and defensible during due diligence. Buyers will scrutinize aggressive add-backs, and unsupported adjustments can kill deals.
Who is ValueJig designed for?
ValueJig serves three primary user groups: (1) Business owners preparing to sell their company in 1-5 years who want to understand and improve their valuation, (2) M&A advisors and business brokers who need efficient valuation tools for client engagements, and (3) ETA searchers and search fund operators evaluating acquisition targets in the $1M-$20M enterprise value range.