John Elder Robison talks about the danger to small business from excess inventory.
As he correctly points out,
"When times get slow debt is the #1 killer of small business. That, and a lack of capital and a lack of hard assets. The best insurance a small business can have is equity in real estate. Banks like that kind of equity best, and when hard times come, the guy with $500,000 equity in his buildings will be fine, but the fellow with $500,000 in inventory may find his loan called, and his company in bankruptcy.
Why, you ask? Because a $500,000 building is 500 grand, any time to anyone (within reason) while $500,000 in inventory may have essentially zero value if the company ceases to operate."
Therefore, it is vital for any small business to correctly interpret industry trends, monitor sales and optimize inventory.
