Every time I talk to a broker about my restaurant they immediately start throwing around SDE multiples like it's gospel. 'Oh, your industry trades at 3x SDE.' Cool, but my SDE is basically my salary plus a little extra. So am I selling a business or just my job? Feels like a convenient way to make a lowball offer sound sophisticated.
Brokers
Why brokers love talking about SDE multiples for main street businesses
SDE is just a number that makes the broker's commission look bigger on paper. Change my mind.
It's not that deep. SDE is the only metric that normalizes small businesses across different structures. If you're a sole prop vs an S-corp, EBITDA gets messy. SDE cuts through that. Buyers need a consistent starting point.
Consistent starting point for what though? I get the math, but the multiple ranges they cite are alwayss suspiciously wide and always land on the low end when it's time to make an offer.
lol @ 'sophisticated lowball'. That's literally the job description.
I sold a landscaping company two years ago. Broker led with a 2.8x SDE multiple. We ended up at 3.6x. The initial multiple was just an anchor. If you know that going in, it's less annoying. Also helps if you have add-backs documented. Most sellers don't and then wonder why the multiple is low.
3.6x on landscaping? What was the SDE range if you don't mind sharing. Asking becuase I'm in a similar spot.
The multiple is also a risk proxy. Main street businesses have high customer concentration, owner dependency, thin management. The multiple reflects that, not some conspiracy. You want a higher multiple, build a business that doesn't fall apart when you take a vacation.
Fair point on owner dependency, but brokers don't frame it that way. They frame it as 'here's the market rate' like it's a commodity price. It's not. Two restaurants on the same block can have wildl different multiples based on things that never show up in a spreadsheet.
The broker loves SDE because it's easy to explain to buyers who don't know what they're doing. Try explaining DCF to a guy who's buying his first laundromat. You'll lose him in 30 seconds.
Genuinely asking—what metric would you prefer they use? Because every alternative I've seen is either more complicated or easier to game.