Seller’s Discretionary Earnings (SDE) Valuation Report
Fiscal Year End: September 30, 2025
Business Overview
The Established Prosthetics Business is a healthcare services company specializing in the design, manufacture, and fitting of prosthetic limbs. The business has been operating continuously for 54 years, establishing deep roots within the regional healthcare ecosystem and earning a long-standing reputation for clinical quality and patient care.
The business serves patients primarily through automatic referral relationships with regional hospitals and rehabilitation centers. A key differentiator is its guaranteed referral structure, under which approximately one-quarter of all prosthetics referrals from local hospitals are automatically directed to the business. This embedded positioning creates a dependable and recurring pipeline of new patients and materially reduces demand volatility.
In addition to new patient inflow, the company benefits from an exceptionally high level of repeat customers. Prosthetics patients typically require ongoing adjustments, replacements, and follow-up services over many years, resulting in durable, relationship-driven revenue that compounds over time.
The company combines clinical expertise with in-house fabrication capabilities, allowing for quality control, faster turnaround times, and long-term patient servicing. Demand for prosthetic services is supported by demographic trends, healthcare coverage, and the essential nature of the services provided.
Financial Performance Summary (2025)
Based on compiled financial information for the year ended September 30, 2025:
- Revenue: $1,668,201
- Gross Profit: $852,039
- Gross Margin: 51.1%
- Income Before Income Taxes: $218,794
Seller’s Discretionary Earnings (SDE)
Seller’s Discretionary Earnings represent the total economic benefit available to a single full-time owner-operator. The following calculation is based exclusively on fiscal year 2025 and uses income before income taxes as the starting point.
SDE Calculation (2025)
- Income before income taxes: $218,794
- Add back: Management bonus (discretionary owner compensation): $150,000
- Add back: Interest on related-party advances: $15,732
- Add back: Amortization (non-cash): $284
Seller’s Discretionary Earnings (SDE): $384,810
(rounded to $385,000)
Balance Sheet Highlights (2025)
The business maintains a strong financial position, with solid liquidity and limited reliance on third-party debt:
- Cash: $274,514
- Accounts receivable: $203,756
- Inventory: $119,709
- Equipment (net book value): $662
- No external bank debt (related-party advances only)
Valuation Analysis (SDE Basis)
Small to mid-sized healthcare and prosthetics service businesses typically transact based on Seller’s Discretionary Earnings, particularly where a buyer intends to be owner-operated. Market data for comparable healthcare services supports SDE multiples in the following range:
- Low Range: 2.5x SDE
- Selected Multiple: 3.1x SDE
- High Range: 3.5x SDE
3.1x Multiplier
The selected 3.1x SDE multiple reflects a combination of financial performance and unusually strong qualitative factors:
- Longevity and institutional credibility: 54 years in continuous operation materially reduces business risk and signals deep market trust.
- Guaranteed hospital referral flow: Approximately 25% of all local hospital prosthetics referrals are automatically directed to the business, providing predictable, non-discretionary demand.
- High repeat customer base: Long-term patient relationships drive recurring service revenue well beyond the initial fitting.
- Strong operating margins: Gross margins consistently above 50% support durable cash flow.
- Reduced marketing dependence: Patient inflow is driven by institutional referrals rather than discretionary marketing spend.
Collectively, these factors justify positioning the business above average SDE multiples for the sector while remaining conservative relative to premium strategic valuations.
Indicated Value Using Selected Multiple
- Seller’s Discretionary Earnings (2025): $385,000
- Selected Multiple: 3.1x
Indicated Business Value: $1,195,000
Inventory & Equipment Valuation:
- Inventory: $95,000
- Equipment: $50,000
- Total Tangible Assets: $145,000
Services & Patient Care
- On-Site Manufacturing Laboratory – Ensures quality and efficiency
- Precision Fit Process – Assessment, casting, fabrication, and fitting tailored to each client
- Long-Term Support – Adjustments and follow-ups provided as patient needs change
- Patient-Centered Care – Clinic staff remain involved until clients are fully satisfied
Products & Technology
Through its partnership with Otto Bock, London Prosthetics provides patients with access to the most advanced prosthetic systems available, including:
- Genium X3 – Advanced microprocessor-controlled knee
- C-Leg – Intelligent prosthetic leg technology
- Harmony System – High-performance vacuum suspension system
- Myo-electric Arm – State-of-the-art upper limb solution
Conclusion
Based on fiscal year 2025 performance alone, the Established Prosthetics Business demonstrates strong revenue growth, consistent margins above 50%, and a defensible Seller’s Discretionary Earnings level of approximately $385,000. The combination of specialized clinical services, recurring patient demand, and a strong financial position supports a valuation that would reasonably fall within the range outlined above, subject to buyer profile and transaction structure.
This valuation is intended as an informational estimate and should be considered in conjunction with further due diligence, including operational review and normalization of owner involvement.
