What makes a business great? This is one of the key questions to ask when looking to invest your dollars in the common stock of a publicly traded company. Obviously, the ultimate goal of any business is to create capital where there was none before; i.e., generate profits.

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However, just because a company is profitable or cash-flow producing today does not necessarily mean it will be profitable or cash flow producing tomorrow - and vice versa! Good investments are made in companies that can reach and sustain profitability and cash flows over a period of time and are not prone to a swift and painful loss of business.

Here are 5 primary factors to look for in a great business:

1. Recurring Sales

   One way to guard against a sudden loss of business is to employ a recurring revenue business model.

   The key characteristic of recurring revenue is simple. The SAME CUSTOMERS pay your company on a REGULAR BASIS - often monthly or more.

   There are lots of examples of recurring revenue models. Rapidly consumed products, like beverages, cleaning supplies, medical supplies, building materials, all lead to recurring sales. So do many service-based industries, like renting/leasing, selling advertising space, cable or streaming television, and so forth.

   This is great because it guards against a sudden and dramatic loss of revenue. It is unlikely that a massive slice of customers are all going to stop their habit of purchasing from a business at once. Also, recurring revenues are cheaper from a marketing perspective. It is far cheaper to retain existing customers than to attract new ones

   Conversely, there are lots of companies that must constantly compete to win business, and after winning it, they may never see more sales to the same customer. One example from our "red dot" list would be General Motors (GM). The vast majority of customers do not buy new vehicles on a frequent basis, and when they do buy a new vehicle, will often switch brands. As a result, GM has a history of revenue booms and busts. A particularly sharp bust in the late 2000's drove the company into bankruptcy! This is not what we want from an investment.

2. Scaling Growth at Low Cost

   Growth is an important factor to consider, but the cost of growing is very important to the ultimate outcome. Truly great businesses can increase revenues without spending a whole lot to do so. Take, for example, Workday (WDAY). Workday is a software-as-a-service (SaaS) company for managing human resources applications. Essentially, all of its products are offered over the internet. Once the servers, databases, and software are in place, Workday can accommodate ever larger numbers of customers without spending a whole lot to support them. This is scalability at low cost, and can usually be seen in gross margins. For example, Workday's cost of revenues has fallen from 49% of sales in 2012 to 28% last year. That's scalability at low cost!

   Compare this to the airlines, a notoriously difficult business. For the airlines to grow revenues, they have to add routes. Adding routes requires massive spending for new planes, airport terminal space, regulatory rights, crew, and so forth. Growing revenues here is a very expensive proposition. Airlines cannot scale without spending a lot of money to do so, and the scale doesn't provide that much benefit for them.

3. High Cash Flow Margins after Maintenance

   Cash flow is what it's all about. This is the capital that a business can re-invest to earn those return on capital figures (growing sales) or pay back to the shareholders in the form of a dividend or repurchase of shares. Good companies can convert a high percentage of their sales into free cash flow - cash left after maintenance costs to keep the business going.

   Let's pick on the airlines again here. Maintaining airplanes is an expensive proposition. Planes have to work flawlessly, which requires a lot of spending for parts, labor, tools, and so on, and in every location the planes fly to or from. All of this eats up the cash earned from ticket sales and leaves little left for the business to re-invest or pay back. Workday's maintenance costs are much less obtrusive. Maintaining computer equipment and software is considerably cheaper. Therefore Workday will (and does!) have more cash left over to invest after maintenance.

4. High Return on Invested Capital

   Think about what your goal is when you invest in a stock, or a mutual fund, or a piece of real estate. You are looking for high returns on your investment, right? The same applies to businesses. Simply put, businesses invest capital to earn a return. Like an investor that earns a higher return on his invested funds is a better investor, so a business that can earn a higher return on the capital it invests is a better business.

   The airlines vs. Workday example applies here as well. For every server Workday buys, or every software improvement they invest in, they can earn a substantial return on that investment. Conversely, for every plane the airline's purchase, there is less upside because of maintenance costs and the limited seat space available at any given time. It's no surprise that Workday has averaged a 31% cash return on investment over the past 5 years, while United Airlines (UAL) has barely eked out a positive ROI in the same time frame.

5. Durable, Structural Competitive Advantages

   All of these attributes of a good business are worthless unless they are attributes that can be sustained over a long period of time. Otherwise, they can disappear and we are left owning a not-so-good business.

   Durable competitive advantages, also known as an economic moat, are key to succeeding with long-term investments. There have been numerous books and writings one the topic from numerous investing masters. Ultimately, a durable moat boils down to having one of 5 key characteristics. A truly great company has one, or preferably several, of these moat factors.

These 5 factors are key to finding truly great long-term businesses to consider for investment! Remember that great investments are not always from what the business is producing today, but what it CAN produce at maturity. If you can find undervalued shares of great business models, and hold on to them over longer periods of time, chances are your investment returns over time will be "quite satisfactory" indeed!