Seller's Discretionary Earnings (SDE) is the most widely used metric for valuing small businesses — typically those with revenue under $5M and a single working owner. SDE represents the total economic benefit available to a full-time, working owner-operator before debt service, depreciation, and above-the-line owner benefits are removed.
How SDE Is Calculated
Start with net profit from the tax return or P&L. Add back: the owner's W-2 compensation, owner's health insurance, owner's retirement contributions, personal expenses run through the business, one-time or non-recurring expenses, and non-cash expenses like depreciation and amortization. The result is the total cash benefit the business provides to its owner. This is SDE.
SDE Multiples and Sale Price
Business sale prices are expressed as a multiple of SDE. A business generating $300,000 SDE selling at a 3x multiple has a sale price of $900,000. The multiple is determined by industry benchmarks, business risk factors, growth trends, and market conditions. Understanding your business's SDE is the foundation of any realistic valuation conversation.
SDE differs from EBITDA (used for larger businesses with multiple managers) in that EBITDA does not add back the owner's compensation. As businesses grow above $5M in revenue with hired management, EBITDA becomes the more relevant metric. Knowing which metric applies to your business and why is essential before any sale discussion.
Recast Seller’s Discretionary Earnings, then apply a planning multiple for this Illinois business. Replacement labor is subtracted. This is a planning tool, not an appraisal.
Before debt, working-capital peg, holdback, and tax. Educational only.
What this Illinois guide is for
What Is Seller's Discretionary Earnings (SDE)? is a working answer for owners and buyers. We will not invent a statewide average sale price. We will show the earnings math, the Illinois clocks that delay a close, and the questions a serious counterparty will ask.
Marketplace context from BizBuySell’s Q2 2026 Insight Report (median reported sale $349,250, 2.7× cash-flow multiple, 14% of owners with a professional valuation) is context — not your quote.
Documents to gather this week
- Three years of signed business tax returns and matching P&Ls
- Year-to-date P&L, balance sheet, and three months of bank statements
- Current lease, amendments, and a plain-English remaining term
- License and permit list, including who holds each card
- Top-customer concentration (names redacted until an NDA)
A simple Illinois close calendar
Plan six to twelve months from cleanup to close on a prepared Main Street deal. Start CBS-1 and any Chicago or Cook notices at letter-of-intent, not the week of funding. Landlord consent often takes longer than the lender.
Related pages on this site
Educational only — not legal, tax, or a formal appraisal. Confirm bulk-sale notices, licenses, and tax allocation with counsel and a CPA.
Questions
No. This is education and planning math. A professional opinion of value is a confidential conversation. We work on a success fee if you engage a sale process. There is no file-upload portal.
Start with adjusted seller’s discretionary earnings, then a vertical planning band. A marketplace average is context, not your quote.
Personal professional licenses do not transfer. Municipal registrations and state notices have their own calendars. Confirm the path before you grant exclusivity.
Most prepared Main Street sales take about six to twelve months from cleanup to close. License transfers, landlord consent, and SBA underwriting add weeks.
CBS-1 is the Illinois bulk-sale notice. File it at least ten business days before an asset transfer that meets the statute. Late filing can put Illinois tax risk on the buyer.