How to choose the right business to invest in

If you are looking for a business to invest in, you may feel overwhelmed by all of the choices. It can be difficult to try and determine which business would be the right investment for you. To help you decide what an excellent business is, there are certain factors that you should consider, before purchase. Best of all armed with this information, over time you'll be more likely to build a portfolio of wealth creating assets. Here is what you need to know about how to choose the right business to invest in-

• The right business will have high returns on capital with little or no debt-No matter how good the business looks, from the outside, it becomes crucial to see the financials before making an investing decision. The right business to invest in will have very high returns on all aspects of their capital. They will have trimmed waste and make cost effective spending a priority. In addition, the right business will have very little or hopefully no debt. While it seems impossible to achieve this many savvy business owners, have carefully managed the paying down, of their debt, to leave their business in the best financial standing possible.
• The right business will have durable competitive advantages-While being at the top of the pack is where you want to be, why you are there is more important. The reason certain businesses are able to succeed so well, is that they have durable competitive advantages. This means they have things that their competitors can't reproduce. It is important to keep in mind that sometimes these advantages are easy to spot, while it is possible for them to remain buried. The bottom line is that when you buy into a company through the purchase of its common stock, try to identify the durable competitive advantages,it has that could stand up from attack by competitors,and market forces such as outsourcing, and increased globalization.
• The right business is scalable-When businesses are highly successful, one of the key ingredients more often than not is scalability. When you think about some of the most successful businesses, you realize that the store or company in New York City is the same as the one Hong Kong or London. Or at the very least the right business will have the potential to become scalable. Successful businesses are that way in part, because they have products or services that could be replicated in cookie-cutter fashion very, very rapidly. The bottom line is that by having the menu, layout, fixtures, and technology (or whatever else is a key component of the business) packaged in a way that it could be rapidly opened, it makes it easier for the chain to roll out across the United States and even the world. When a business has this ability coupled with relatively high returns on equity (and possibly the cash provided by the franchisees), which can help foot the bill, the business becomes scalable and a much better investment.
• The right business still has the right price-While trends in past decades lead investors to pay far more then a business was actually worth, today savvy investors understand that price is still paramount. The reality is that even if a business was all it was cracked up to be, at a ridiculous price, it would be virtually impossible to earn a satisfactory long-term rate of return. This is why it is so important to consider all aspects of the business, and understand that how lower growth rates can actually lead to higher rates of return in certain circumstances.