What is EBITDA vs SDE?

EBITDA = Earnings before interest, taxes, depreciation, amortization. SDE adds back owner compensation. EBITDA is used for valuations above $5M EBITDA; SDE for below.

What is a good EBITDA margin for manufacturing?

Manufacturing median is 8-12%. Top quartile is 16% or higher. Source: US Census Bureau Annual Survey of Manufactures.

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EBITDA & SDE Calculator - the bottom line buyers actually look at.

EBITDA = net income + interest + taxes + depreciation + amortization. It is the profit number buyers and lenders use to value a manufacturer. Enter your figures to get EBITDA, SDE, and your add-backs.

Most mid-market manufacturers conflate EBITDA, SDE, and net income. The differences are worth millions at exit. This calculator walks you through both - step by step - with valuation ranges at the end.

Step 1: Start with Net Income

Annual revenue ($)

Net Income (bottom line of P&L) ($)

Step 2: Add back standard EBITDA adjustments

Interest expense ($)

Income tax ($)

Depreciation ($)

Amortization ($)

Step 3: Add back for SDE (if you're under $5M EBITDA)

SDE = what a buyer takes home. Used for valuations of businesses under $5M EBITDA. Add back owner compensation and discretionary expenses a new owner wouldn't continue.

Owner salary ($)

Owner health insurance ($)

Owner retirement contributions ($)

Owner vehicle / phone / personal ($)

Owner family on payroll, above-market rent, perks ($)

One-time / non-recurring expenses ($) things that won't repeat

When your books need to stand up to a buyer's audit

SimpleGrid's event ledger gives you defensible EBITDA - every transaction traced to source.

Owner add-backs documented automatically. Depreciation schedules current. Monthly close in days, not weeks. Buyers do 60-90 days of due diligence; your data should be ready.

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EBITDA vs SDE - which one matters?

EBITDA strips out financing decisions (interest), accounting decisions (depreciation/amortization), and tax structure. It's how buyers compare your earning power to other businesses, regardless of how each is financed. Used for valuations above $5M EBITDA.

SDE goes further: it adds back owner compensation and discretionary perks - because a new owner would replace your salary with a market-rate manager and stop paying for your golf membership. Used for valuations under $5M EBITDA, where the owner's involvement is material.

Why EBITDA is not cash flow

EBITDA ignores working capital, capital expenditure, and loan payments. A business with $1M EBITDA but $500K in annual equipment needs has $500K in real cash flow. Buyers know this - they look at EBITDA, then they look at capex and working capital separately.

FAQ

What add-backs will buyers question?

Any single add-back over 5% of SDE will get scrutiny. Total add-backs above 50% of SDE will get heavy scrutiny. Document everything - emails, receipts, board minutes - for anything you add back.

What's a healthy EBITDA margin for mid-market manufacturing?

Median is 8-12%. Top quartile is 16%+. Below 6% is bottom quartile and indicates a structural problem - usually pricing power, scale, or product mix. Below 6% with growth makes you a turnaround target; above 12% with growth makes you a strategic acquisition target.