If you’ve ever started reading about business valuation, you’ve probably stumbled across a menu of acronyms: SDE, EBITDA, DCF. They sound technical, but what they really represent are different ways of answering the same question: what is this business worth?
Which method gets used depends largely on the size and complexity of the business—and who the likely buyer will be.
SDE: The Owner’s Len
For many Florida businesses under about $3 million in value, the standard is Seller’s Discretionary Earnings (SDE).
Think of SDE as the view through the owner’s eyes. It starts with net profit and then adds back things that a single owner-operator might do differently—like their own salary, health insurance, or personal expenses that have flowed through the business.
For example, if you own a small coffee house in Jacksonville, and you’ve chosen to pay yourself below market to keep expenses low, that gets added back. If you ran the family cell plan through the business, that comes out. The goal is to show a new owner: Here’s the cash flow you can reasonably expect if you step into my shoes.
SDE is the common language for Main Street businesses—restaurants, trades, boutiques—where an individual buyer is likely stepping in as the new owner-operator.
EBITDA: The Investor’s Lens
As companies get larger—typically above $3 million in value—buyers shift focus to EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization.
EBITDA is more neutral. It strips away the specific quirks of one owner’s decisions and looks at the company as a stand-alone investment. Investors, private equity groups, or corporate buyers want to compare apples to apples: how much does this business really earn, independent of any one person’s choices?
If you run a multi-location medical practice in Orlando or a regional construction firm in Tampa, chances are buyers will be talking EBITDA. It allows them to benchmark performance against similar companies across the country.
DCF: The Future’s Lens
Finally, there’s Discounted Cash Flow (DCF)—the most theoretically precise, but also the most complex. DCF projects future cash flows and then “discounts” them back to today’s value, recognizing that a dollar earned five years from now isn’t worth as much as a dollar earned today.
DCF is rarely used for very small businesses because forecasts can be unpredictable. But for larger, more stable operations—say, a manufacturing company in Miami or a technology services firm in Tampa Bay—DCF can capture value that multiples alone might miss.
Why It Matters
Each method tells a story.
- SDE tells the story of the owner’s lifestyle and cash flow.
- EBITDA tells the story of the business as an investment.
- DCF tells the story of the future potential.
For smaller, owner-operated businesses, SDE is almost always the starting point. As businesses grow in scale and complexity, EBITDA and sometimes DCF become more appropriate.
The key is that buyer and seller agree on which language they’re speaking—otherwise, you end up with two very different pictures of the same business.
Filed under SDE vs EBITDA vs DCF for Florida businesses
Simone Dominique is an industry analyst focused on the human side of business transitions. Through her writing and research, she provides clarity on the M&A process for owners and buyers, exploring the intersection of market data and owner psychology.
