If you are preparing to sell your business, one of the first questions you will face is also the most important: what is it worth? For companies with more than $1 million in annual revenue, the gold-standard metric for answering that question is EBITDA—Earnings Before Interest, Taxes, Depreciation, and Amortization. Unlike smaller Main Street transactions that rely on SDE (Seller’s Discretionary Earnings), EBITDA strips out owner-specific financial decisions and paints a cleaner picture of operational profitability. This guide explains how EBITDA-based valuations work, what multiples different industries command in 2026, how to adjust your EBITDA upward, and when buyers may push back with discounts. If you want a credible business valuation before going to market, start here.

EBITDA vs SDE: Which Metric for Which Deal Size

Before applying any multiple, you must choose the right earnings metric. SDE and EBITDA are not interchangeable, and using the wrong one can overstate or understate value by hundreds of thousands of dollars.

Seller’s Discretionary Earnings is the standard for businesses doing under $1 million in annual revenue. SDE starts with net income, then adds back the owner’s salary, personal expenses run through the business, and one-time costs. It presents the total economic benefit available to a single owner-operator. When a buyer is stepping into a business where they will work full-time, SDE tells them what they can expect to earn personally.

EBITDA applies to larger businesses—generally those with $1 million or more in revenue—where the owner functions more as a CEO than a hands-on operator. It adds back interest, taxes, depreciation, and amortization but does not add back a full owner salary. Instead, it assumes a replacement manager cost. This metric reflects the earnings available to a financial or strategic buyer who will not be working in the business day-to-day.

The difference between SDE and EBITDA for the same company can be substantial. Imagine a $2M-revenue Illinois manufacturing firm with net income of $300,000. The owner pays herself a $150,000 salary and runs $30,000 in personal expenses through the company. Add back depreciation of $20,000, and the SDE is $500,000. Under EBITDA, you replace the owner’s salary with a $90,000 market-rate manager, leaving EBITDA of $440,000. That $60,000 difference becomes material when multiplied by a 5x or 6x multiple. For this reason, professional valuations always specify which metric is being used and why.

2026 EBITDA Multiples Across 30 Industries

EBITDA multiples are not arbitrary. They reflect the risk, growth prospects, asset intensity, and competitive dynamics of each industry. In 2026, buyer sentiment across sectors is shaped by interest rate stability, labor market tightness, and supply chain normalization post-pandemic. Here are representative EBITDA multiples for Illinois and national transactions based on mid-market deal data.

Healthcare and Medical Services: Medical practices, dental offices, and veterinary clinics trade between 6.5x and 9x EBITDA. Recurring patient revenue and insurance reimbursement stability drive premiums. Specialty practices such as dermatology, orthodontics, and ambulatory surgery command the upper end. Illinois sellers benefit from a large insured population in the Chicago metro, though Medicaid rate pressures in downstate markets compress multiples slightly.

Technology and SaaS: Software companies with recurring revenue and low churn trade at 8x to 14x EBITDA. Multiples here are the highest among all sectors because of scalability and margin structure. However, profitability matters more than it did during the 2020-2021 boom. A SaaS company growing 40% annually but burning cash will struggle to find buyers in 2026, whereas one growing 20% with 30% EBITDA margins commands top-tier pricing.

Manufacturing: General and precision manufacturing trades between 4.5x and 7x EBITDA. Niche manufacturers with proprietary processes, long-term vendor-managed inventory agreements, or aerospace and defense certifications reach the higher end. A CNC machine shop in Rockford with diversified customers and modern equipment might attract 6x, while a commodity metal stamper with customer concentration might trade at 4x or below.

Distribution and Logistics: Industrial distribution businesses command 5x to 7x EBITDA. The key differentiator is whether the distributor adds value beyond warehousing—such as kitting, light assembly, or vendor-managed inventory. A Peoria-based electrical distributor with value-added services and a private-label line will fetch a richer multiple than a pure-play distributor carrying only national brands.

Business Services: Marketing agencies, accounting firms, IT services, and consulting practices trade between 4x and 7x EBITDA. Recurring revenue, long-term contracts, and low client concentration support higher multiples. Professional services with high employee turnover or project-based revenue tend toward the lower end. A managed IT services provider (MSP) in Naperville with 85% recurring revenue under three-year agreements is a textbook high-multiple business services acquisition.

Restaurants and Food Service: Fast-casual and quick-service concepts trade between 3x and 5x EBITDA, while full-service and fine dining tend toward 2x to 3.5x. Franchises with strong unit economics and a multi-unit growth path can break above 5x. Illinois sellers should be aware that liquor license transfers, health department compliance, and Cook County wage ordinances add complexity and can delay closings.

Construction and Specialty Trades: Commercial and residential construction companies trade between 3.5x and 5.5x EBITDA. HVAC, plumbing, and electrical contractors with maintenance contracts enjoy higher multiples than project-driven general contractors. A Springfield HVAC company with $800K in annual maintenance revenue and a technician team that has been stable for five years is a fundamentally different asset than a speculative home builder with lumpy cash flow.

Automotive: Auto repair, collision centers, and tire shops trade between 4x and 6x EBITDA. Multi-location holdings with fleet accounts and wholesale insurance relationships command premiums. Single-location shops with heavy owner dependence trade at the lower end. A downtown Chicago auto repair shop with city fleet contracts and a non-owner service manager can justify a 6x multiple, while a suburban single-bay operation run by the founder might trade at 3.5x.

Retail: Brick-and-mortar retail is bifurcated. Niche retailers with loyal local followings and experiential components trade at 3x to 5x EBITDA. Big-box adjacent competitors and undifferentiated commodity retail struggle to find buyers at all. E-commerce components can lift multiples if the digital channel is growing and profitable. A specialty running store in Evanston with a community event calendar and a strong online store commands a better price than a generic sporting goods reseller.

Senior Care and Assisted Living: Home healthcare and non-medical senior care agencies trade between 5x and 7.5x EBITDA. Demand is structurally driven by aging demographics. Medicaid reimbursement rates and staffing shortages are the primary risk factors. An agency in DuPage County with private-pay clientele and a stable caregiver roster is a prime acquisition target.

Education and Tutoring: Test prep centers, tutoring franchises, and trade schools trade between 3.5x and 5.5x EBITDA. Subscription and recurring enrollment models outperform pay-per-session businesses. Online delivery can improve scalability but must be reflected in actual earnings, not just projected growth.

Printing and Packaging: Commercial printers and packaging converters trade between 3.5x and 5x EBITDA. Equipment age, environmental compliance, and digital competition are the three major risk factors. A converter serving the food and beverage industry with FDA-compliant processes and stable contracts performs better than a general commercial printer with declining volume.

Agriculture and Equipment: Farm equipment dealerships, irrigation services, and precision agriculture providers trade between 4x and 6x EBITDA. Seasonality and commodity price exposure matter. Illinois sellers in the ag sector should highlight recurring service contracts and parts revenue, which smooth cash flow and support higher multiples.

Waste and Environmental Services: Hazardous waste disposal, recycling, and environmental remediation businesses trade between 5x and 8x EBITDA. Regulatory moats and licensing barriers protect margins. A Chicago-area hazmat hauler with EPA permits and long-term industrial clients is an extremely defensible asset.

Real Estate and Property Management: Property management firms trade between 3x and 5x EBITDA. The underlying real estate is valued separately. A management company with recurring fees, ancillary services like maintenance coordination, and a low tenant turnover rate will outperform a pure-pass-through manager.

Adjustments That Move Your EBITDA Up

Most privately held businesses understate EBITDA on their tax returns. Owner perks, non-recurring expenses, and one-time investments all drag down reported earnings. A critical part of any valuation process is adjusting EBITDA to reflect what a buyer would actually experience post-acquisition.

Owner Compensation: If you pay yourself $200,000 but a replacement manager would cost $90,000, the $110,000 excess is a legitimate add-back. The reverse is also true: if you take no salary, EBITDA must be reduced by a market-rate management cost.

Personal Expenses: Family cell phones, vehicles used for non-business purposes, personal travel booked as client entertainment, and club memberships can all be added back if they are truly owner-discretionary and will not recur under new ownership. Buyers will demand clear documentation, so maintain separation well before listing.

Non-Recurring Costs: Legal fees from a 2023 lawsuit, costs to relocate facilities, CPA fees for a one-time audit, and rebranding expenses are adjustments. However, if your business incurs “one-time” costs every year, buyers will treat them as recurring and reject the add-back.

Above-Market Rent or Related-Party Transactions: If you own the building through a separate LLC and charge your operating company above-market rent, the excess is an add-back if the buyer will not be obligated to the same lease structure. Similarly, below-market rent is a deduction, since the buyer will have to pay fair market rates eventually.

One-Time Revenue Events: PPP loan forgiveness, insurance proceeds from a fire, and gains on asset sales should all be removed from EBITDA. Buyers are buying future earnings, not windfalls that will not repeat.

Properly adjusted EBITDA can increase enterprise value by hundreds of thousands of dollars. However, aggressive or unsupported adjustments destroy credibility. A disciplined seller prepares a quality of earnings analysis before going to market and shares it transparently. Nothing kills a deal faster than a surprise adjustment discovered during buyer diligence.

When Buyers Apply a Discount to Reported EBITDA

Just as sellers want to maximize EBITDA, buyers want to stress-test it. Sophisticated acquirers apply discounts or quality-of-earnings adjustments to reported numbers when they identify risks that could erode future cash flow. Understanding these discount triggers helps you address them before listing.

Customer Concentration: If more than 25% of revenue depends on a single customer, buyers may haircut the multiple or model account attrition. Diversifying your customer base before going to market is one of the highest-return pre-sale investments you can make.

Owner-Dependent Revenue: If you personally generate most sales through relationships that will not transfer, buyers will discount EBITDA to account for a revenue dip during transition. Institutionalizing sales processes, introducing clients to your team, and documenting CRM activity are essential defenses.

Gross Margin Volatility: Wild swings in gross margin signal pricing pressure, poor cost control, or unreliable suppliers. Buyers prefer steady margins. If your margins have compressed recently, explain why and demonstrate a recovery plan before listing.

Management Depth: A business that cannot survive thirty days without the owner is fundamentally riskier. Building a management team and empowering them with clear authority and accountability supports the multiple and protects the business post-close.

Regulatory and Environmental Exposure: Manufacturers with outstanding EPA issues, healthcare providers with CMS audits, and any business with unresolved litigation face EBITDA discounts or escrow holdbacks. Address these issues proactively. A resolved problem is far better than a looming one.

In 2026, buyers are disciplined but not bearish. Interest rates have stabilized, and private equity dry powder remains at record levels. A seller who presents clean, adjusted EBITDA backed by solid fundamentals and reduced concentration risk can still command a premium multiple. The key is preparation, transparency, and realistic positioning. If you are ready to explore your options, contact our advisory team for a confidential conversation.

Frequently Asked Questions

What is a good EBITDA multiple for a small business?
It depends on industry and size, but profitable small businesses typically trade between 3x and 5x EBITDA. Niche businesses with recurring revenue and low owner dependence can stretch higher.

How do you calculate EBITDA for valuation?
Start with net income, then add back interest, taxes, depreciation, and amortization. Do not add back owner salary in full—only the amount above a market-rate replacement manager.

Are EBITDA multiples higher or lower than SDE multiples?
EBITDA multiples are generally higher because EBITDA is a lower earnings number than SDE (after replacing the owner salary with a manager cost). A 5x EBITDA multiple and a 3x SDE multiple can produce similar enterprise values for the same company.

Can I value my business using EBITDA myself?
You can calculate EBITDA, but applying the right multiple requires knowledge of comparable transactions, industry trends, and buyer sentiment. A professional valuation will be more accurate and more credible to buyers and lenders.

What lowers EBITDA multiples the most?
Customer concentration, owner dependence, declining revenue or margins, and unresolved legal or regulatory issues are the most common causes of multiple compression.

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