I've "resurrected" a number of K241 and K301 engines on the cheap, so you might try this:
Get a gasket set for your engine.
Remove the head, then rotate the engine and put the piston at bottom center. Check the cylinder bore for vertical scoring. If you see none, check the bore diameter to see if the cylinder was ever bored oversize. Remove the engine, remove the oil pan, remove the rod cap and push the piston and rod out of the bore. Hone the cylinder bore to get a good 30 degree crosshatch. Install a new piston and ring set. Be SURE to reinstall the rod cap in the correct relationship to the rod (the casting marks on each piece will be evident), and ensure that the oil hole in the rod cap faces the direction of normal crankshaft rotation. Replace the pan. Next, remove the valve stem access cover plate, spacer, reed valve and inner plate. Remove the valves. Replace any that have worn faces, and lap them in (assuming the valve seats aren't burned). Set each valve to its proper cold clearance. Reinstall the valve access plates, etc., being sure that the small oil drain hole in the inner plate is at the bottom. Sand the cylinder head mating surface flat on a flat surface using 220 sand paper. Reinstall the head, noting that the longer head bolts go in the deeper bolt bores. Remove the engine shrouds and clean them, as well as the cylinder fins. Reinstall the engine.
Now is a good time to remove the starter/generator, remove the armature, and clean the generator case with field windings in a bucket of HOT water and Dawn dishsoap, rinse, and blow dry. Sand the armature commutator smooth, undercut the mica, and reinstall with new bearings and brushes.
Fill the oil sump with non-detergent 30W oil and run the engine in!