What's the difference between SDE and EBITDA?

SDE (Seller's Discretionary Earnings) adds back the owner's full compensation, benefits, and non recurring expenses to show the full economic benefit of ownership to a new owner operator, used for businesses under $1M SDE. EBITDA (Earnings Before Interest, Tax, Depreciation, Amortization) does NOT add back owner compensation, assuming a market rate manager replaces the owner, used for businesses above $1M EBITDA with professional management. SDE is appropriate for main street businesses; EBITDA for platform acquisitions by PE firms, search funds, and lower middle market.

What are typical SDE multiples for HVAC businesses in 2026?

HVAC services under $1M revenue typically sell at 2.5x to 4x SDE (May 2026 benchmarks). HVAC services in the $1M to $10M range with recurring maintenance contracts and professional management trade at 5x to 7.5x EBITDA. Recurring service contract book is the single largest premium driver, adds 0.5 to 1.0x to the multiple vs. pure call out service revenue.

How does customer concentration affect valuation?

Top customer over 40% of revenue typically triggers a 20% multiple discount. Top customer over 50% often breaks the deal entirely or forces heavy seller financing plus earn out to close. Buyers and lenders see concentration as the #1 transition risk, if that customer leaves after close, the business model implodes. Spread revenue across 20+ accounts for 12+ months before selling to maximize multiple.

Does recurring revenue really add multiple premium?

Yes, materially. Businesses with 50%+ recurring revenue (subscriptions, service contracts, retainer agreements) typically add 0.5 to 1.0x to the multiple vs. identical EBITDA with transactional revenue. For 70%+ recurring revenue, premium can be 1.0 to 1.5x. Reason: recurring revenue is predictable and survives ownership transition; transactional revenue requires re selling each customer every period.

What is Adjusted EBITDA and why does it matter?

Adjusted EBITDA normalizes reported EBITDA by adding back one time legal/consulting fees, non recurring capex, owner benefits eliminated post sale (family on payroll, discretionary vehicles, country club memberships), and other non core items. It's the number buyers price off in the $1M to $5M range. A Quality of Earnings (QofE) analysis by a CPA firm ($15K to $60K) is standard for deals above $3M, buyer or lender will require it regardless.

How do self storage and hotels differ from typical SDE/EBITDA valuation?

Self storage and hotels are real estate heavy assets valued primarily by cap rate (NOI ÷ cap rate) not SDE/EBITDA multiple. Self storage typically trades 5% to 7% cap rates (equivalent to 8x to 12x NOI). Limited service hotels trade 7% to 10% cap rates. Our calculator shows SDE/EBITDA multiples for comparison but for these asset types use cap rate valuation and a CRE appraisal.

What multiples do PE firms pay vs. individual buyers?

PE firms doing platform acquisitions typically pay 1.0 to 2.5x higher multiples than individual buyers for the same business. Reasons: scale synergies, roll up strategy ('arbitrage the multiple'), tax structure advantages, and willingness to commit more equity. Individual buyers using SBA 7(a) financing typically buy at main street SDE multiples (2x to 4x). Search fund buyers bridge the gap with 3x to 5x EBITDA purchases.

How fast can I go from valuation to closed acquisition with SBA financing?

SBA 7(a) business acquisition deals typically close 90 to 120 days from LOI signature: 30 days for LOI + QofE, 30 days for SBA loan package + underwriting, 30 days for lender commitment + closing documents, and 7 to 14 days for funding. Well prepared sponsors with clean QofE, existing SBA relationship, and non complex deal structure can close in 60 days. Complex multi site deals or deals with real estate + operating company split typically run 120 to 150 days.

Business Valuation · SDE & EBITDA Multiples · 20 Industries

Business Valuation Calculator: SDE & EBITDA Multiples by Industry

Enter your industry, SDE or EBITDA, recurring revenue %, customer concentration, and growth rate. Live output: low / midpoint / high valuation range with adjustment factors applied. Multiples calibrated to May 2026 BizBuySell, Pepperdine, IBBA, and industry advisory transaction data.

Covers 20 industries including HVAC, plumbing, electrical, landscaping, auto repair, restaurants, ecommerce, professional services, manufacturing, self storage, hotels, home health, dental practices, fitness, SaaS, and multi unit franchise resale.

Last updated: May 16, 2026·By Ed Freeman, Capital Advisor. PeerSense

Business Inputs

Industry

Recurring service contracts add 0.5 to 1.0x premium.

Valuation Metric

SDE (Seller's Discretionary Earnings) for owner operated <$1M SDE. EBITDA for $1M+ with professional management.

Annual SDE: $250K

Annual Revenue: $1.20M

Recurring Revenue: 40%

Maintenance contracts, subscriptions, long term agreements. Higher = multiple premium.

Top Customer % of Revenue: 25%

Higher concentration = discount. 40%+ top customer triggers serious risk pricing.

Revenue Growth (YoY): 8.0%

Positive growth = premium; declining revenue = steep discount.

Indicative Valuation Range

Low

$656K

2.63x SDE

Midpoint

$853K

3.41x SDE

High

$1.05M

4.20x SDE

Revenue Multiple (midpoint):0.71x

Industry Base Range:2.5x. 4x SDE

About these figures

Rate, spread, leverage and term levels shown here are indicative. They reflect general conditions among direct capital sources as of October 1, 2026 and describe what the market has recently supported, not an outcome available to any specific borrower.

Actual pricing, leverage and terms are determined by the lender through underwriting, once full transaction materials have been reviewed. Nothing shown here is a quote, a commitment, an offer of credit or a guarantee.

PeerSense is a capital advisory firm. We source capital through a curated network of commercial lenders and capital sources. Every credit decision belongs to the lender.

Market conditions move. Figures may change without notice, and a level that cleared last quarter may not clear today. What these terms mean.

Adjustment Factors Applied

Recurring Revenue Premium

40% recurring rev

+10.0%

Customer Concentration

Top customer 25% of rev

-5.0%

Revenue Growth

8.0% YoY

–

Net Adjustment to Multiple+5.0%

Indicative valuation only. Actual purchase price depends on asset mix (real estate vs. operating business), earn out / seller note structure, working capital adjustments, environmental liabilities, industry cycle, and the specific buyer pool (strategic vs. PE vs. search fund). Multiple ranges calibrated to May 2026 BizBuySell, Pepperdine, IBBA, and industry advisory transaction data. This is NOT a formal appraisal. Consult a certified business valuation expert (CVA, ASA, ABV) or M&A advisor for transaction pricing.

SDE vs. EBITDA: Which Metric Applies to Your Deal?

SDE: Seller's Discretionary Earnings

Use for: owner operated businesses under $1M SDE, single location service businesses, independent restaurants, small franchisees. SDE adds back the owner's full compensation + benefits + one time expenses to show the "full benefit" of ownership to a new owner operator.

Formula: Net Income + Owner Salary + Owner Benefits + Non Recurring Expenses + Depreciation + Amortization + Interest.

EBITDA: Earnings Before Interest, Tax, Depreciation, Amortization

Use for: professionally managed businesses with $1M+ EBITDA, multi unit operators, platform acquisitions by PE firms, search fund targets. EBITDA does NOT add back owner compensation (assumes a market rate manager replaces the owner).

Formula: Net Income + Interest + Taxes + Depreciation + Amortization. Market rate manager salary is assumed as an expense.

The "Adjusted EBITDA" Bridge

In the $1M to $5M range, many deals are valued on Adjusted EBITDA: EBITDA plus one time legal/consulting fees, non recurring capex, owner benefits that would be eliminated post sale, and other normalization adjustments. Quality of earnings (QofE) analysis by a CPA firm is standard for deals above $3M. Buyer or lender will require it regardless.

Six Factors That Move Your Multiple Up or Down

↑

Recurring Revenue

Maintenance contracts, subscriptions, long term service agreements. 50%+ recurring revenue typically adds 0.5 to 1.0x to the multiple vs. pure transactional revenue at the same SDE/EBITDA.

↓

Customer Concentration

Top customer >40% of revenue = 20% multiple discount. Top customer >50% = deal often falls apart entirely or requires heavy seller financing + earnout. Spread your rev across 20+ accounts before selling.

↑

Revenue Growth Rate

Flat business at industry baseline. 15 to 25% YoY growth adds 10 to 15% to multiple. 25%+ growth often doubles it. Declining revenue (negative YoY) triggers distressed pricing regardless of absolute SDE.

↑

Real Estate Ownership

Seller owns the operating real estate. Buyer can separate the real estate purchase (cap rate based) from the business purchase (multiple based). Often provides access to SBA 504 financing plus 1031 exchange optionality.

↑

Management Team Depth

Key employees with employment contracts + non competes who stay post sale. Seller dependent business (owner does sales + ops + finance) triggers 0.5 to 1.5x multiple discount because the transition risk is real.

↕

Industry Tailwinds vs. Headwinds

HVAC / plumbing / electrical benefit from strong support from an aging workforce and housing stock. Retail / hospitality more cyclical. Declining industries (print media, fossil fuel retail) price 1 to 2x below baseline.

You Have a Valuation. What's Next?

1
Validate with a formal QofE. For deals above $3M total consideration, a Quality of Earnings report by a CPA firm ($15K to $60K) normalizes EBITDA, flags non recurring items, and tests customer/vendor concentration. Required by most SBA and conventional lenders above $2M.
2
Model the capital stack. Map the purchase price across SBA 7(a) (up to 90% LTV, 10 to 25 yr amort), seller note (typically 10 to 25% of price, 7 to 10 yr, 6 to 8%), mezzanine debt ($1M+ deals), and sponsor equity. Use our Business Acquisition Calculator to model different capital stack scenarios.
3
Pre qualify your lender. SBA 7(a) for owner operator acquisitions. SBA 504 if real estate is included. Conventional bank for $5M+ with mature cash flow. Private credit / mezzanine for deals above $10M or complex structures. SBA hub.
4
Negotiate the LOI. Valuation is one number. Deal structure (earn outs, escrows, working capital adjustments, seller note subordination) can move effective purchase price by 20 to 30% either direction. Get capital advisory involved before signing the LOI, not after.
5
Close with PeerSense. We structure the debt + equity stack, draw on a curated network of capital sources, handle the SBA package or institutional term sheet, and close in 60 to 120 days depending on complexity. Fee at closing only.

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Sources & References

Business Valuation Sources (May 2026)

Pepperdine Private Capital Markets Report: Quarterly survey of lenders, investors, and brokers: the primary benchmark for lower middle market EBITDA multiples.
BizBuySell Insight Report: Quarterly report on small business transaction prices and multiples across industries. The primary source for SDE benchmarks under $1M.
IBBA Market Pulse Report: International Business Brokers Association quarterly survey of deal activity and multiples in Main Street (<$2M) through lower middle market ($2M to $50M).
Capstone Partners: M&A Sector Updates: Investment bank transaction comps and EBITDA multiple benchmarks by sector (HVAC, manufacturing, business services, healthcare).
SBA 7(a) Acquisition Financing Guide: Official SBA 7(a) program guidance for business acquisition loans, up to $5M, 10 year term, 90% LTV in many structures.
AICPA Statement on Standards for Valuation Services: AICPA SSVS 1 professional standards for business valuation engagements, the framework CPA firms follow for formal valuations.

External links are provided for informational and verification purposes. PeerSense is not affiliated with and does not endorse any third party site. Information was current at the time of publication.

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Published by PeerSense Capital Advisory · Written by Ed Freeman, Founder. Updated May 2026.

Disclaimer: This calculator produces indicative valuation ranges only. Actual purchase prices in U.S. small and lower middle market M&A depend heavily on specific asset mix (real estate vs. operating business), earn out / seller note structure, working capital adjustments, environmental liabilities, pending litigation, customer contract assignability, industry cycle, and the specific buyer pool. Multiples shown reflect approximate May 2026 BizBuySell / Pepperdine / IBBA / Capstone transaction benchmarks and are NOT a formal appraisal. For transaction pricing, engage a certified business valuation expert (CVA, ASA, ABV) or M&A advisor. PeerSense sources capital through a curated network of commercial lenders and capital sources, appraiser, or broker dealer.