In this guide
- SDE = pre-tax profit + one owner’s full pay and benefits + interest + depreciation and amortisation + one-off and discretionary costs.
- Normalised EBITDA = SDE less the market cost of a manager to replace the owner.
- Buyers who will run the business themselves think in SDE. Investors and groups who will hire a manager think in EBITDA.
- As a rough guide, below about S$300,000 of normalised EBITDA, SDE is the usual basis.
- Only one owner’s pay is added back. A second working owner, or a spouse on the payroll, is a real cost.
The difference in one line
Both start from the same accounts. The difference is the owner:
- SDE asks: how much does this business give one full-time owner-operator each year? So the owner’s salary, CPF and benefits are added back.
- Normalised EBITDA asks: how much would this business make if the owner stepped away and a manager were hired at market rates? So a market salary for that manager is deducted.
A buyer who plans to run the business themselves is buying a job and a return together, so SDE fits. A buyer who will put in a manager, such as a group, an investor or a competitor, is buying a return only, so EBITDA fits.
How to calculate SDE
Start from profit before tax and add back:
- One owner’s salary, bonus, director’s fees, employer CPF and benefits
- Interest on borrowing
- Depreciation and amortisation
- One-off costs that will not recur, such as a legal dispute or a one-time repair
- Discretionary costs that a new owner would not incur, such as a personal car or travel run through the business, if documented
Also remove one-off income, such as a government grant or an insurance payout, because a buyer will not receive it again.
A worked example: the same business both ways
| Item | S$ |
|---|---|
| Profit before tax | 200,000 |
| Add: owner’s salary and employer CPF | 136,000 |
| Add: interest on a bank loan | 10,000 |
| Add: depreciation of fit-out and equipment | 40,000 |
| Add: one-off legal fees | 15,000 |
| Add: owner’s personal car, documented | 20,000 |
| SDE | 421,000 |
| Less: market cost of a general manager, salary and CPF | less 150,000 |
| Normalised EBITDA | 271,000 |
At 2x SDE, the business is worth about S$842,000. At 3x normalised EBITDA, about S$813,000. The two measures use different multiples because they measure different things, and done properly they land close together. If they are far apart, something in the adjustments needs another look. At this size, below about S$300,000 of normalised EBITDA, most buyers would price this business on SDE.
Which one buyers will use for your business
| Usually SDE | Usually normalised EBITDA | |
|---|---|---|
| Size | Below about S$300,000 of normalised EBITDA | About S$300,000 and above |
| Who runs it | The owner, full time | A manager or team, with the owner more strategic |
| Likely buyer | An individual who will run it | A group, competitor or investor |
| Typical multiple in Singapore | About 1x to 3x | About 2x to 5x |
The line is not fixed. A business near the boundary may be looked at both ways, and the more it runs without you, the more buyers will treat it as an EBITDA business, which tends to widen the pool of buyers. See typical ranges by sector on our valuation multiples page.
What moves an SDE multiple
Within the 1x to 3x range, buyers pay more for:
- A business that runs with fewer of your hours
- Recurring revenue, such as contracts, subscriptions or regular customers
- A long, transferable lease and licences that can be renewed in a new owner’s name
- Steady or rising profit over three years
- Clean records that support every add-back
They pay less where the customers follow you personally, the lease is short, or the add-backs cannot be documented.
Common mistakes with SDE
- Adding back two owners. SDE adds back one working owner. If two partners both work in the business, the second one’s pay is a real cost.
- Adding back family on the payroll. A spouse or relative paid for real work is a cost a buyer will bear. Only pay above the market rate for the work can be added back.
- Ignoring the owner’s hours. If you work 70 hours a week in several roles, a buyer may need more than one hire to replace you, and will adjust for it.
- Applying an EBITDA multiple to SDE. Multiplying SDE by an EBITDA-sized multiple overstates the value, and buyers will spot it at once.
- Counting grants as profit. One-off and temporary government support comes out before any multiple is applied.
Questions owners ask
What is a good SDE multiple for a small business in Singapore?
Most owner-run Singapore businesses priced on SDE sell for about 1x to 3x. The higher end goes to businesses that run with less of the owner’s time, have recurring customers, a long transferable lease and clean records that support the add-backs.
Does SDE include the owner’s salary?
Yes. SDE adds back the full pay and benefits of one working owner, including salary, bonus, director’s fees and employer CPF, because it measures what the business gives one owner-operator each year. Normalised EBITDA instead deducts a market salary for a manager.
Is SDE higher than EBITDA?
For the same business, yes. SDE adds back the owner’s pay, while normalised EBITDA deducts the market cost of a manager, so SDE is the larger figure. That is why SDE multiples are lower than EBITDA multiples: applied properly, the two lead to a similar price.
Should I use SDE or EBITDA to value my business?
If you work in the business full time and its normalised EBITDA is below about S$300,000, buyers will most likely use SDE. If a manager or team runs it day to day, or it is larger, they will use normalised EBITDA. Our valuation calculator chooses the basis for you from your figures.