When managing a dental practice, it’s easy to get lost in all the ways to establish worth. EBITDA and SDE are two different ways of measuring the earnings or income-generating ability of a business, the main difference being the way the doctor’s compensation is treated. Here’s what else you need to know about the differences and similarities between EBITDA and SDE as it relates to your dental practice.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Aptly named, it is calculated using a company’s earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company’s current operating profitability. In dentistry, it represents the investment someone would make if someone else does the work. EBITDA reflects a value based on investment and is mostly used when a group is looking to buy the practice.
SDE stands for seller’s discretionary earnings. In short, it’s EBITDA plus the deduction of all the owner’s income and benefits. SDE represents a true take-home value and leftover money after you pay the doctor and run the practice. It is made up of adjustments, net income, and the amount of money that the doctor pays themselves. This valuation method is used for individual buyers as a way for third-party investors to look at a practice.