Market wage

Definition

What the open market pays someone to do the job the owner does today.

Why It Matters

Every earnings figure a seller quotes assumes somebody runs the place, and when that somebody is the seller working sixty hours for nothing, the number is not repeatable. Subtracting a market wage for the role is what turns SDE into EBITDA, and it is the line that decides whether a deal clears its debt, because a lender underwrites coverage after the buyer has been paid like an employee. Look the number up by occupation instead of guessing it: a seller's own draw is evidence of what they chose to take, not of what the job costs to fill.

In numbers: A seller shows $700,000 of SDE and works in the business full time. Pay the replacement $120,000 and the earnings a lender underwrites are $580,000, which is a 17% haircut before a single add-back is argued.