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Leveraged buyouts are not just for the big guys. Money is available for buyers of smaller companies who know how to structure a deal. Borrowing against assets like equipment, inventory, and accounts receivable gives the entrepreneur the most freedom and thus remains the most popular LBO technique. If a deal is to succeed, the owner must have a compelling reason to sell.

No matter what their business, managers need to know how much cash they have to pay their obligations. Unfortunately, some of the cash flow measures they usually use to check their cash position--including net income plus depreciation (NIPD) and earnings before interest and taxes (EBIT)--only work when sales are steady. When sales skyrocket, the measures overestimate cash; when sales plummet, they underestimate cash. A new concept, net operating cash flow--double prime, more clearly indicates the position of a company's cash bottom line.

Entrepreneurs should compile a financial forecast that includes three elements: an income statement, a balance sheet, and a cash flow statement. Forecasts should look ahead five years and include three scenarios: a most likely, a most pessimistic, and a most optimistic. Key estimates for putting the income statement together are sales, costs of goods sold, general and administrative expenses, and selling expenses. Key estimates needed for the balance sheet are accounts receivable, inventory, and the debt-equity ratio. These estimates enable one to complete the cash flow statement.

Managers of smaller companies should pay close attention to the image their companies project to the business world. The impression conveyed to bankers, financial analysts, venture capitalists, and others is important because these people assign company valuations. Managers seeking to improve their companies' images should concentrate on four major factors: management, company name and trademark, annual report, and financial public relations.

Factors that potential owners should evaluate prior to starting a new venture include: type of business, yearly income, and balance sheet net worth; potential market size; the advantages of multiple-product businesses over one-product businesses; the superiority of repeat sale products to single-sale products; the avoidance of elementary and unfashionable products; the intensity of initial capital outlay; pricing in relation to gross profits; the existing market's profit structure; division of stock ownership; and future prospects of the venture's price earnings relationship.