As a small business owner, you're typically consumed by the day-to-day routine of your business. The purpose of our articles is to help you take a step back from daily tactical work to consider the business itself - the strategic work.

Summer is usually a great time to take a couple of days to conduct some of this strategic work. We're more than half way through the year. How is your business stacking up against the benchmarks you set?

This year with the world economies looking for signs of recovery, money management has been a key focus area for business coaching clients at Patterson Partners. We've noticed that a review of a few fundamental concepts has been a turning point for more than a few.

So we're dedicating the month of August to this subject, focusing on selected fundamentals in this column with more detail to follow. Of course, we'd love your feedback and also topic suggestions for future columns. Please write to either e-mail address.

As business owners, we are (or should be) interested in how money helps us operate, develop and build wealth as a result of the risk we take in being owners (versus being employed by someone).

In this regard, four separate, yet highly integrated, factors govern the subject of money: 1. Income; 2. Profit; 3. Cash Flow: and 4. Equity.

Income is what the business is paid for its services or products. The end.

It is true that the business needs income, but from a planning perspective, income is a target or goal to be achieved. It is a number that a business owner sets intentionally.

Profit is what is left over after a business has done its job effectively and efficiently. If there is no profit, there is something wrong with the business somewhere.

Profit is best understood in the context of the strategic goals for the business as it fuels the forward motion of the business that produces it.

For example, profit can be investment capital that feeds and supports growth. Or it can be bonus capital that rewards people for exceptional work. It can also be operating capital used to offset cash flow shortfalls. And it can take the form of return on investment capital, providing a much needed reward for being in business.

Cash flow is what money does in a business - it includes the element of time. We talk to a number of small business owners who tell us that money moves erratically through the business- sometimes it is there, even in large quantities, and then it isn't.

We often find these owners are focusing their attention on the two items discussed above, thinking that profit is cash flow. While the profit and loss statement tells you how much money you are spending and where, as well as how much money your receiving and from where, it does not provide any information about the movement of money through time. How much is coming in? How much is going out?

For most businesses, you might like to know this daily or for some service businesses weekly or monthly. You must be able to forecast cash flow - then you can better manage it.

Sadly, few business owners fully appreciate the value of equity in their business. Yet, equity is a valuable asset, like the equity in your home. Put simply, it is the financial value placed on your business by a prospective buyer of your business.

To the business owner, the business itself is more important than the products or services it provides. It is the wealth builder for the family.

Of course, to enhance your equity - to increase your business' value - you have to build it well. You have to build a business that works, one that can produce income, profit, cash flow and equity better than any of your competitors. To accomplish this, you must design your business accordingly - and conduct regular plan reviews.

This article is part of a series reflecting on some of the 'best practice' issues and considerations relevant to owners of privately held companies. Asgill Post Ltd. provides assistance with Business Valuation, Financial Strategy and the Purchase and Sale of Companies. More information, visit www.asgillpost.com or contact Kumi Bradshaw MBA, CBA, BVAL via email at kumi@asgillpost.com or phone 295-3301 Patterson Partners Ltd. provides Bermuda/US cross-border tax, estate and investment planning services. For more information, visit www.patterson-partners.com or contact Jennifer A. Patterson, CFP®(US), CIMA®, TEP via email at info@patterson-partners.com or phone 296-3528.