EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the standard profitability metric used to value mid-market businesses — typically those with revenues above $3–5M that have professional management separate from the owner. Unlike SDE, EBITDA does not add back owner compensation because a professional CEO would need to be hired to replace the owner's management role.
Why EBITDA Is Used for Larger Businesses
For businesses large enough that the owner's personal labor is not the primary value driver, EBITDA provides a capital-structure-neutral view of operating profitability. A buyer using debt financing or an all-cash buyer can both use EBITDA as a common comparison metric, regardless of how they fund the acquisition. Interest expense, tax strategy, and depreciation schedules vary by buyer — EBITDA strips all of these out to show operating performance.
EBITDA vs. Adjusted EBITDA
In practice, most business sales use Adjusted EBITDA — EBITDA with non-recurring items, above-market owner compensation adjustments, and one-time expenses added back. Sellers often argue for more add-backs; buyers push back on aggressive adjustments. Negotiating the appropriate adjustment list is a core part of the valuation discussion in any mid-market transaction.
Understanding whether your Illinois business is best presented on an SDE or EBITDA basis — and what the appropriate adjustments are — is one of the first conversations to have with your business broker or M&A advisor before going to market.