What are the disadvantages of there being too much liquidity in a business?

There are very
few disadvantages to liquidity per se, but in practice (and in a
competitive financial market) there are downsides that more liquid assets (such as money) have
over less liquid assets (such as factories).

The most important one is
return, or lack thereof; more liquid assets usually don't pay very much
interest, and are usually not the sort of thing that directly earns revenue by itself. If you
keep your wealth in cash instead of investing it, you bear the opportunity cost
of the return you could have made on those investments.

There are
also often differences in how different assets are taxed; often more liquid assets are taxed
higher than less liquid assets in an effort to incentivize investment.

In
businesses specifically, excess liquidity is generally a sign that the company is being too
risk-averse, and failing to invest in new ventures such as research that carry risk but can also
yield great rewards. Cash is a safe asset (not perfectly safe, since there is inflation and
currency exchange to worry about, but safer than most other assets), but in part because of this
it actually yields a negative real return (due to inflation). Businesses often liquidate their
assets and hold cash during recessions, because they fear the future; but this actually tends to
exacerbate recessions by taking productive assets out of use and pulling cash out of
circulation.

Wise business managers maintain a balance, keeping some
liquidity in case they need it but not so much that they sacrifice the opportunity for
investment returns.

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