Too Much Cash Has a Price: What 372 Dutch SMEs Reveal About Cash Reserves
Featured in CMweb. This research was recently covered by CMweb in the article “Onderzoek naar kasreserves mkb: te veel cash heeft een prijs” (7 October 2026). Read the full article in Dutch or view the LinkedIn post.
Many entrepreneurs see a large cash buffer as a sign of a healthy business. More cash feels safe. The doctoral research of Maria Mulder Karadimou shows that this is only true up to a point.
For her Doctorate of Business Administration, Maria analyzed eight years of financial data from 372 Dutch SMEs, covering 2015 to 2022. She also interviewed 30 entrepreneurs about the cash decisions they make in daily practice.
What the research shows
Dutch SMEs hold more cash on average than comparable companies in other European countries. The main reason is caution. Owners want to be prepared for setbacks they cannot predict.
Many of these companies combine high cash balances with high debt. They borrow when they can and keep the money as a buffer, in case financing becomes harder later. Companies with enough collateral tend to hold less cash, because they know they can borrow when needed.
The turning point
Performance improves as cash reserves grow, but only up to a certain point. Beyond that point, the effect reverses. Cash sits idle, investments are postponed, and growth opportunities are missed.
A large buffer can also weaken decision making. When money is plentiful, the sense of urgency fades and choices become less sharp.
“Both too little and too much cash harms the performance of a company.”
Look at operating cash flow
The balance in the bank says little on its own. The most important indicator is operating cash flow. Does the business generate enough cash from its core activities to fund what it does?
Five ways to manage cash better
1. Monitor operating cash flow continuously
Know where your cash comes from. Can you fund investments yourself, or do you regularly cover shortfalls with new debt? A company that has to keep borrowing to operate is vulnerable.
2. Think in scenarios, not only in budgets
What happens if revenue drops by 20%, customers pay late, an investment cannot wait, or a major customer leaves? Knowing how long you can operate without extra income leads to better decisions, made by choice instead of necessity.
3. Treat surplus cash as a strategic question
Do not only ask how much is in the bank. Ask whether that cash creates value. Options include repaying loans early, investing in innovation or digitalization, acquisitions, or expanding capacity.
4. Recognize the most common biases
The interviews showed that owners rely heavily on rules of thumb, such as keeping three months of salaries or one year of rent in reserve. Four biases came up most often:
A determining event. A past crisis, such as nearly going bankrupt, leads to permanently high cash holdings.
Insufficient adjustment. A rule of thumb set during COVID is never reviewed, even as the company changes.
The illusion of validity. Owners trust personal relationships or intuition more than analysis when they make large investments. A business case, a scenario analysis, and independent quotes help here.
False similarity. Owners assume that a small company is simple to manage. Financial complexity does not shrink with company size.
5. Organize a second opinion
Review your liquidity at least once or twice a year. Look at reserve levels, growth plans, planned investments, financing structure, working capital, and sector risks. An independent view helps to break tunnel vision.
A clear role for controllers
Many SMEs lack a structural financial sounding board. Bookkeepers handle the administration but rarely give strategic advice on liquidity, so owners often decide alone. This is where controllers and financial managers can add real value.
More cash is not always better
Companies need liquidity to absorb shocks and to seize opportunities. More cash, however, does not automatically lead to better results. The right reserve depends on the sector, the business model, and the growth stage of the company. The real task is to decide how much reserve you need and what to do with the rest.
“Cash management is not a savings contest.”
