Executive Summary: Buyers focus heavily on the numbers. Most owner-led businesses are valued off normalised earnings using SDE, EBITDA, or EBIT. Pick the metric that reflects how your business truly makes money, apply an industry-informed multiple, and prepare early so your numbers are clean and defensible. Even a focused 3 to 6 month preparation window can significantly improve outcomes.
Reach out to us at WhatsApp at +65 8079 0028 if you would like to book a confidential consultation.
Why valuation clarity matters
Selling your company is high-stakes and technical. A small mistake can be costly, and much of what’s written online isn’t tailored to your facts. Understanding how value is framed—and preparing your records so that value is obvious and defensible—sets the tone for productive conversations with buyers. Whether you’re preparing to sell my business Singapore or exploring opportunities to buy and sell business in Singapore, accurate business valuation Singapore is the foundation of every successful transaction.
If your business is performing strongly, with solid results over several years, timing can support a better price because buyers pay for clear, consistent performance. This is especially true in mergers and acquisitions Singapore, where disciplined preparation and transparent company valuation Singapore methodology strengthen your negotiating position.
This guide explains the three most common earnings-based yardsticks used in practice—SDE, EBITDA, and EBIT—and when each fits best. You’ll also see a simple worked example and practical steps to lift your valuation before you go to market.
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The three common “normalised earnings” metrics
1. SDE — Seller Discretionary Earnings (owner-operator lens)
What it is:
SDE is used predominantly for smaller businesses, such as those earning below S$1 million per financial year (a rule of thumb, not an absolute line). It aims to show the total financial benefit to an owner-operator by normalising the profit figure—essential when you sell private limited company holdings structured around owner-operator models.
How it’s built (plain-English formula):
Start with net profit, then add back:
- the owner’s salary,
- non-recurring expenses,
- interest,
- taxes,
- depreciation,
- amortisation, and
- other owner benefits.
These add-backs strip out items that distort the sustainable earnings a buyer can expect.
How value is derived:
After you calculate SDE, apply an SDE multiple. The multiple is typically informed by averages among peers in your industry and indicators specific to your business (e.g., size, stability, customer mix).
Illustrative example:
A bakery with S$400,000 in SDE might attract an SDE multiple of 2.5–3.0× in a given location, implying a value around S$1.0–1.2 million.
Small-deal practicality:
Where a business is valued below ~S$1 million, it may be more cost-effective to limit the scope of legal, financial and/or tax due diligence. That is a judgment call for the owner, buyer and advisors—balancing the benefit of lower transaction costs against the additional risk of not conducting full diligence.
2. EBITDA — Earnings Before Interest, Taxes, Depreciation & Amortisation (operating lens)
What it is:
EBITDA is typically used for businesses with more than S$1 million in earnings and focuses on operating profitability rather than owner-operator benefit. EBITDA is the dominant metric in business valuation Singapore for professionally managed companies and a standard reference point in mergers and acquisitions in Singapore law and practice.
How it’s built:
Start with net income and add:
- interest,
- depreciation,
- taxes, and
- amortisation.
Unlike SDE, EBITDA does not add back the owner’s salary or other owner compensation. The result is a clearer view of the business’s operating performance that can be readily compared with peers.
How value is derived:
Apply an EBITDA multiple. The multiple is informed by industry averages for similar businesses and is central to company valuation Singapore and discussions with strategic buyers and private equity firms.
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3. EBIT — Earnings Before Interest & Taxes (asset-intensity lens)
What it is:
EBIT is similar to EBITDA, but excludes depreciation and amortisation add-backs (i.e., those non-cash charges are left in the earnings figure). EBIT is often used for asset-intensive businesses where depreciation reflects real, recurring capital needs to maintain operations.
When to favour EBIT vs EBITDA:
- If you must consistently purchase depreciable assets to maintain (not grow) cash flow, EBIT may be the more accurate lens because ongoing depreciation is a meaningful cost of staying in business.
- High depreciation alone is not a perfect signal. If depreciation stems from growth investments rather than maintenance capex, EBITDA may still be more appropriate.
Which metric should you use?
As a rule of thumb, use the yardstick that best represents the economic reality of your company:
- Owner-operator models, sub-S$1m earnings: start with SDE to reflect discretionary items tied to the owner.
- Larger or professionally managed companies: favour EBITDA as a comparative operating measure for business valuation Singapore and company valuation Singapore purposes.
- Asset-intensive businesses with maintenance-heavy capex: consider EBIT, unless depreciation is mainly growth-driven, in which case EBITDA remains suitable.
Consistency is key. Once you choose a yardstick, keep your logic straight through your teaser, IM, management presentation and buyer Q&A—organised according to your data room checklist—so the story is coherent when you sell my business Singapore.
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A simple, worked example (SDE)
Scenario: You operate a specialty bakery.
- Net profit (last financial year): S$250,000
- Add-backs (owner salary + non-recurring expenses + interest + taxes + depreciation + amortisation + owner benefits): S$150,000
- SDE = S$400,000
Assuming your industry/market supports an SDE multiple of 2.5–3.0×, the implied value is S$1.0–S$1.2 million.
This is illustrative only. Actual multiples vary with factors like stability of demand, customer concentration, and the competitive landscape. The point is that normalising your earnings makes the comparison fair and the valuation conversation focused—critical foundations when navigating mergers and acquisitions Singapore processes.
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Why “normalising” matters to buyers
Earnings normalisation:
- puts owner-specific items and one-offs in their proper place,
- makes your numbers comparable to peers, and
- reduces grounds for buyers to question whether the headline figure overstates sustainable performance.
If you don’t normalise early, buyers will do it for you—often conservatively—and that can translate into a lower view of value when they conduct company valuation Singapore analysis.
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Preparing the numbers buyers want to underwrite
A disciplined preparation phase helps you present normalised earnings that stand up to scrutiny:
- Have a light questionnaire-driven review to gather financial facts consistently.
- Draft your core materials: a teaser/fact sheet (1–2 pages), a confidential information memorandum (IM) with expanded detail, and a management presentation deck.
- Populate a virtual data room (VDR): organise financials and supporting documents according to a comprehensive data room checklist so buyer Q&A can proceed efficiently.
- Keep performance steady: buyers value consistency; letting operations slide during a sale process can undermine valuation.
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Small-deal cost–benefit: limited diligence
If your business is valued below ~S$1 million, a limited scope of legal, financial and/or tax diligence may be more proportionate. This can reduce transaction costs, but it does increase risk for both sides because potential issues might not be fully investigated. Owners, buyers and advisors must weigh the trade-off carefully, particularly when you sell private limited company shares with inherent liabilities.
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Lifting your valuation before you go to market
If you can, establish a preliminary valuation one to two years before you intend to sell. That time allows you to execute a value-creation plan that can improve valuation over the initial figure. Even three to six months of focused action helps.
Three practical levers:
- Increase revenue
- Expand sales volume.
- Improve revenue quality with long-term contracts.
- Optimise pricing methods.
2. Enhance capital efficiency
- Reduce costs, optimise inventory, and improve cash-flow management with customers and suppliers.
3. Improve profit margins
- Optimise production flow.
- Reduce production and operational costs.
- Increase product quality.
Executing some or all of these steps shows buyers the company can deliver additional value under continued management, which supports stronger company valuation Singapore outcomes and better positioning in mergers and acquisitions Singapore negotiations.
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Putting multiples in context
Multiples are not plucked from thin air. For SDE and EBITDA, they are typically informed by industry averages for comparable companies, then adjusted for the specifics of your business. Presenting clean, normalised earnings and evidence of stable operations helps position you toward the upper end of a reasonable range.
Remember: the yardstick (SDE, EBITDA, or EBIT) should match the economic nature of your business. A mismatch simply invites buyers to recast your figures and question your multiple—particularly problematic in competitive buy and sell business in Singapore processes where multiple bidders are comparing offers.
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Practical checklist (before you show your numbers)
- Prepare normalised earnings using the yardstick that fits (SDE, EBITDA or EBIT) for accurate business valuation Singapore.
- Document the logic of your add-backs and keep support handy in your data room checklist.
- Maintain steady operations; avoid performance dips while marketing the business.
- Get your teaser, IM, management deck and VDR in order so buyers can review efficiently.
- Decide early whether your scale justifies full diligence or a limited scope (and understand the risks of the latter).
Consult counsel experienced in mergers and acquisitions in Singapore law and practice to determine whether a share sale vs asset sale structure better supports your valuation story.
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FAQ
1) What’s the main difference between SDE and EBITDA?
SDE includes add-backs for owner compensation and other owner-specific or non-recurring items, making it suitable for owner-operated businesses, often below S$1 million in annual earnings. EBITDA excludes owner compensation and focuses on operating profitability, making it a better comparative yardstick for larger or more professionally managed companies in business valuation Singapore exercises.
2) When should I use EBIT instead of EBITDA?
Use EBIT where depreciation and amortisation reflect ongoing, maintenance-level capex required to keep cash flow steady. This is typical in asset-intensive businesses. If high depreciation relates mainly to growth, EBITDA may still be more appropriate for company valuation Singapore purposes.
3) How are multiples chosen?
For SDE and EBITDA, multiples are typically informed by industry averages among peers and adjusted for your specific indicators. Clean, normalised earnings and stable performance help justify healthier multiples in mergers and acquisitions Singapore contexts.
4) Can smaller deals limit due diligence to save costs?
Yes. For businesses valued below ~S$1 million, limiting diligence scope can be more cost-effective. But do note that it increases risk because fewer issues are investigated. Owners, buyers and advisors should weigh this trade-off carefully when you sell private limited company holdings.
5) How far in advance should I prepare?
As early as possible. A preliminary business valuation Singapore one to two years ahead gives you time to execute a value-creation plan. Even three to six months of focused work can produce tangible benefits.
6) What concrete steps can improve valuation before sale?
Grow revenue (especially long-term contracts), enhance capital efficiency (costs, inventory, cash-flow practices) and improve margins (process optimisation, quality, cost control). These changes demonstrate future value to buyers and support stronger company valuation Singapore outcomes.
7) Do buyers prefer one metric over another?
Buyers prefer the metric that best reflects the business model. Owner-operated models often present SDE; larger or managed businesses often present EBITDA; asset-intensive operations may use EBIT. Consistency with mergers and acquisitions in Singapore law and practice norms matters.
8) How long does a sale typically take?
A well-run mergers and acquisitions Singapore process generally takes at least six months to one year, with stage lengths varying by deal size and complexity.
9) What supporting materials should I have ready?
A concise teaser/fact sheet, a fuller IM, a management presentation, and a populated VDR organised according to a comprehensive data room checklist with financials and supporting documents. These keep buyer review efficient and focused when you sell my business Singapore.
10) Does valuation method affect share sale vs asset sale decisions?
Not directly, but share sale vs asset sale structuring can influence post-tax proceeds and risk allocation, which in turn affect net value to the seller. Advisors experienced in buy and sell business in Singapore transactions will help you align valuation methodology with optimal deal structure.
Reach out to us at WhatsApp at +65 8079 0028 if you would like to book a confidential consultation.
Disclaimer: Our articles are intended for your general information only. They are not intended to be nor should they be regarded as or relied upon as legal advice. These articles neither constitute nor substitute independent legal advice, and you should still seek independent legal advice for your legal matters. You should consult qualified legal professionals before taking any action or omitting to take action in relation to the matter discussed in our articles.
