Today, we’re going to chat about two important things: SDE and EBITDA. Now, I know those sound like fancy words, but don’t worry, I’m here to break it down for you.
First off, let’s talk about SDE, which stands for Seller’s Discretionary Earnings. Basically, SDE shows how much money a business makes in a year, but it also includes things like the owner’s salary, perks, and other expenses that might not show up on the books. It’s like looking at the big picture of how well a business is doing financially. One of the key components in SDE is owners W2 salary (cash distributions, not K1, not owner’s drawls). An adjustment is made, either up or down, to normalize to fair market salary for the role and industry.
Now, onto EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Whew, that’s a mouthful! But what it really means is how much money a business makes before taking out some specific expenses. EBITDA helps give a clear picture of a business’s operating performance, without getting bogged down in all the nitty-gritty details.
So, why are SDE and EBITDA important when selling a business? Well, they help potential buyers understand how much money they could make if they take over the business. Every business has an SDE and EBITDA but they are never the same. They must be different.
When I’m helping folks sell their businesses, I use SDE and EBITDA to show buyers just how awesome the opportunity is. By highlighting the strength of these numbers, I can help sellers get the best deal possible.
So, there you have it! SDE and EBITDA might seem like complicated terms, but they’re pretty simple once you break them down. And when it comes to selling your business, they can make all the difference in getting the deal done right.
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