> Business owners who take a loss are defined by the government as living in poverty.

The poverty line sets a minimum level of consumption. These people are consuming above that threshold, so i don't think the government counts them as poor.

> If it weren't, consumption would be equal to income + change in net worth.

You're forgetting change in asset prices. If i own a house, and consume all my income, my net worth can still change if the price of the house changes.