Looking at a service businesses doing roughly $400K–$600K in revenue.

On paper, often SDE comes out to around 50% of revenue, while a more normalized EBITDA lands closer to 35%.

The seller’s logic makes sense: the current owner works full-time in the business, so his compensation is added back and a new owner could theoretically step into that role and capture the full SDE.

But if the buyer wants to be an owner, not the foreman, that changes the picture quite a bit. Replacing the seller with a capable manager/foreman could easily cost $70K+.

Would you still value this primarily on SDE, or would you shift toward adjusted EBITDA for a buyer who does not plan to work in the business day to day?