September 2017

Oregon Dairies on Fast Track | Nursery Exports are #1 | Overcoming Construction Labor Shortages

September 2017

Clint Newell Auto Group, Customer Advocate

Keeping the Promise to Customers and Community For 32 Years

Hyperlink We decided a couple of months ago to include an expanded number of hyperlinks to the articles appearing in the Southern Oregon Business Journal. Our effort is intended to connect the reader to the most helpful web address possible. Please take advantage of this easy connection to locate additional information about the topics in the articles. They are quite helpful.

The whole world seems to be operating at hyper-speed these days. It can be both exciting and frightening. Witness information commonly found on social media sites; if only people would do a little more research before making giant leaps to inaccuracy. It does keep us on our toes when attempting to present accurate information in the articles we present.

In the future, we will be presenting articles that require more discernment in our analytics. Controversial subjects are often best avoided but on occasion are simply unavoidable. When we discover material of strong local interest that has an impact on the economy, education, health, and business in general we are obligated to share information with our readers. If a bias in one direction or another happens to be present we try to offer opinions from another source that might differ from that of our original author. Forgive us if we miss a step now and then and feel free to send an email with your observations.

We enjoyed the wonder of witnessing the eclipse in totality from our vantage point in Driggs, Idaho. Though it wasn’t on our bucket list, we now realize it should have been. The difference between an eclipse of 99% and 100% is incredible. It also offers up opportunities for metaphors about many things.

Heat, fires and floods, economic development, regulatory hassling, healthcare, transportation, and a dozen other subjects provide more than an ample supply of topics to include in the monthly editions of the journal. We will make every effort to provide interesting and valuable information to many of them.

Let’s all enjoy the cooling weather of fall.

Greg Greg Henderson, Publisher greg@southernoregonbusiness.com

Southern Oregon Business Journal

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A JOURNAL FOR THE ECONOMICALLY CURIOUS, PROFESSIONALLY INSPIRED AND ACUTELY MOTIVATED

Table of Contents PUBLISHERS NOTE

OTHER BUSINESS

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28 Forest Road Construction

Hyperlink

30 Growth through Innovation ECONOMICS

32 Thomason Hospitality Group

4 Fed Watch

34 What’s My Business Worth?

6 Disconnection reflection 8

Clint Newell

10 Construction Labor 13 Keeping Customers 14 Affordable Housing

AGRICULTURE 16 Orgon Dairy Production 23 Nursery Exports 24 Oregon Farm Bill

Cover:

Clint Newell Auto Group—Roseburg Oregon 703 Divot Loop Sutherlin, Oregon 97479 www.southernoregonbusiness.com 541-315-6127

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Tim Duy's Fed Watch Multiple Jobholders Are Not A Weak Spot In The Employment Report Along with every decent employment report comes the efforts to debunk that report. I see that an article from Pedro Nicolaci Da Costa at Business Insider is making the rounds tonight. In it Da Costa directs us to this in particular from Komal Sri-Kumar: The plight of low-income workers is underlined by yet another statistic. According to BLS numbers, 7.6 million workers held multiple jobs last month, up 2% from 7.4 million in July 2016.

The principal reason workers hold more than one position is

that no single job provides a sufficient income. In a robust economic recovery, the number of full-time workers should be rising, and the number of workers employed part-time or holding multiple jobs, should decline. The rise in the number of multiple job holders is troubling, and is yet another signal that there is still slack in the labor market. Are we there yet? No, we are still far from full employment.

Let's look at a picture of this one: Sri-Kumar claims that in a robust economic expansion, the number of multiple job holders should be declining. In other words, multiple job holders should be a countercyclical indicator. But even the most cursory look at the data tells you that the number of multiple job holders is a procyclical indicator. It should rise as the economy gains steam and there is more opportunity for those who need or want second jobs to find such employment.

The trend of multiple job holders is very clearly not a sign of weakness in the economy, but a sign of strength.

It is also worth noting that as a percentage of the employed, the number of multiple job holders has been in a two decade decline: Note that the job market of the late 1990's is considered one of the best, yet at the same time the percentage of multiple job holders was rising and high.

A decline in the number of multiple job holders, both in absolute and percentage terms, was actually a leading indicator of recession. In other words, if you are concerned about opportunities for those who need or want multiple jobs, you should be hoping these metrics move higher, not lower.

Bottom Line: The rise in the number of multiple job holders is a sign of economic strength, not weakness.

Regardless of what the bears might say, the July employment report was solid.

Get over it. Worry about the inability of this Administration to deal with a crisis like North Korea instead.

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Disconnection Reflection

By Patrick Watson 10 years ago this summer, the world changed. The remarkable part is how quickly we forgot.

The catalyst was Apple’s first iPhone, introduced in 2007. None of its capabilities were really new; they all existed in other devices, but Apple’s slick combination was a near-instant hit.

Competitors responded, and now up to two-thirds of adults in the developed world—and about 54% of people in emerging countries—own some kind of smartphone.

realize that was a mistake. Research shows that writing by hand actually helps your brain work better.

The reasons for taking handwriting seriously are worth considering even if you’re not a kid or a parent worried about education. Anyone can benefit from penmanship’s cognitive benefits, whether you’re taking notes at a meeting or just trying to figure out what you think.

Brain scans during the two activities also show that forming words by hand as opposed to on a keyboard leads to increased brain activity. Scientific studies of children and adults show that wielding a pen when taking notes, rather than typing, is associated with improved long-term information retention, better thought organization, and increased ability to generate ideas.

Life with “dumbphones” was different. Go back further, and we didn’t even have those, yet somehow we survived.

Last week, I got to relive that era, and you know what? I liked it.

When Paper Works Better Yesterday, I flew home from five days in Maine that I spent with John Mauldin and other top economists and fund managers at the annual Camp Kotok economics/ fishing retreat. The weather was beautiful; I even caught some delicious fish.

That may seem like a small thing to you, but it completely changes the group dynamic. People look inward instead of outward. They notice each other. They communicate better.

All this would have been unremarkable 20 years ago— maybe even 10. Now it’s rare and refreshing.

This short break reminded me how our technology isn’t always as helpful as we think.

For instance, recently I saw a Quartz article on cursive handwriting. Many schools that stopped teaching it now

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That matches my own experience. I used to see people at conferences taking notes on their computers and feel a little embarrassed to bring out my paper notepad. But having tried both, I found that handwriting is faster, and I retain the information better.

For all our whiz-bang technology, it turns out that a pen and notepad work better than the latest “notebook” computers and you never have to recharge them.

(They’re also hackproof, at least for me. No one else can read my writing even if they steal my notepad.)

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Of course, we still need computers, but obviously different kinds of work require different tools.

Investors should remember that principle.

The Next Hot Thing Stock investors love to chase the next “hot thing.” Some company invents a widget and investors, expecting sales to go through the roof, buy the stock to cash in.

Sometimes it works. More often, it doesn’t.

Even if the new invention works exactly as designed and costs less than competing products, people still may not buy it. Old habits die hard.

Ironically, Apple is wrestling with that exact problem. It’s getting harder to differentiate the iPhone from competitors—which in turn makes sustaining historic profit margins harder as well.

Apple doesn’t have a monopoly on success. Many smaller companies are working on technologies that may be the next hot thing, and even niche products can earn big profits if they fill a need.

Sometimes you want to focus on the things that won’t change.

People will keep eating. They’ll still need places to live. They’ll need medicine when they get sick and transportation to get to work.

Technology changes over time, and so does daily life. But you can also make money from things that don’t change. No need to always chase the Next Big Thing—you may be better off with the simple and familiar.

Where to get those ideas?

Try this: Put your smartphone in a drawer and go fishing. You may be surprised what comes to mind.

See you at the top, Patrick Watson P.S. Check out the #CampKotok Twitter hashtag for photos and articles about Camp Kotok.

Southern Oregon Business Journal

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How to Sell a 1985 Pea Green Buick

By: Greg Henderson

How do you sell a pea green, two-door, and more product knowledge than in years past.

1985 Buick Park Avenue? Clint Newell and his Influencing the change is a new generation of

It sold to a person who was looking for exactly that car.

buyers. One big reason is that, instead of assuming they will just deal with a salesperson, millennials tend to research purchases online, visiting an average of 25 sites, according to trade journal Automotive News. That means they’ve largely made up their minds by the time they arrive on the lot.

There is no inventory carry over and never has been since Clint Newell Auto Group opened its doors, starting with that pea green Park Avenue. “We have to take our personal biases out of our inventory selection” is a lesson learned in those first days of owning an auto dealership. Thirty-two years later the lesson is well learned.

“We know from some of the research that we do that there are a lot of young folks that are not so intrigued by the traditional negotiation process,” Lexus executive Jeff Bracken told the Washington Post last year as it began its fixed pricing experiment. “And even a group of folks that just don’t even want to go in the dealerships.”

partner found it on the lot they bought in Roseburg on November 1, 1985.

Every car in inventory is sold because the customer is making the choice. “Buyers are only buying one car. It’s a really big deal.” Knowing this, Clint and his team make sure the buyers will always find the car they are looking for by having a car in every segment that is popular.

It is no longer 1985. Customers have changed with technology and time. To be a successful business person the way business is conducted must change as well. There are, however, a few traditional practices that have not changed especially in small towns across America. It is vital to be a member of the community in which you live.

Selling retail is a hands-on, customer relationship experience requiring more expertise, better training,

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Clint Newell is more than a car dealer. He’s a community leader who lives by a high standard 8

advocating approachability and focus on retention of a good community image. That takes an investment in time and effort.

He was a co-founder, with Dick Nichols of Winston, of the popular free concert series “Music on the Half-Shell” 26 years ago, and continues to be heavily involved. Until the end of its existence, Clint was also a major sponsor of the Rotary Duck Race who contributed over $220,000 in cars and trucks over 12 years. In 2015 he was named “Papa Duck.”

The agencies that benefited from the Duck Race are Battered Person’s Advocacy, Douglas C.A.R.E.S., Healthy Families of Douglas County, CASA of Douglas County, the Family Development Center, and Safe Haven. That’s commitment. That’s community leadership.

Clint Newell Auto Group is also a title sponsor of the NASCAR summer racing event, as well as the summertime Douglas County Fair.

Clint Newell will tell you that a good business person, especially in the automobile, industry has to be much, much more than a skilled negotiator. The best business person will be an advocate for the customer. According to some that means:

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Provide support to managerial operations for customers.

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Develop training programs and ensure optimal level of performance for activities.

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Manage internal and external customer and provide necessary customer support.

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Administer all customer order, manage requests and resolve associate issues for customers.

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Monitor all customer inquiries and complaints and assist in effective resolution of same.

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Analyze customer issues, determine causes and initiate corrective actions.

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Coordinate with customer and ensure optimal level of customer services.

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Prepare records and monitor results of customer and associate departments.

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Prepare solutions and ensure retention of all customers and associate business.

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Analyze all issues of customers and new products and advocate appropriate resolutions from management.

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Ensure optimal level of customer services.

Yes, Clint Newell Auto Group sells cars. But there is much more to the dealership than that. The company has spent 32 years becoming a firmly placed community member willing to pitch in when needed and taking part in activities that are vital to the community.

Customer Advocate Responsibilities and Duties •

Ensure optimal level of transactions for customers and ensure absence of all issues.

•

Prepare documents for customers and management and manage follow up.

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Employees remain for years. Customers are able to establish a trusting relationship with employees because those employees will likely still be there in five or ten years when its time to replace their car with a newer model.

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Quality Information, Informed Choices New Entrants into Oregon’s Construction Industry Helping to Ease the Labor Shortage

by Damon Runberg Oregon’s current economic expansion caught up to the construction industry as the supply of available residential, commercial, and industrial space declined. The largest driver in the uptick of construction demand is Oregon’s housing market where private housing permits have increased 46 percent over the past five years (U.S. Census Bureau). The result? Rapid hiring across the construction industry.

In the past two years, the construction industry added around 16,000 jobs – a whopping 20 percent increase – making it Oregon’s fastest growing industry sector. The construction industry accounts for around 5 percent of all nonfarm jobs in Oregon, however the industry accounted for greater than 17 percent of all nonfarm jobs added in Oregon over the past two years. A combination of rapid job growth and skilled workers leaving the industry during the recession led to a labor shortage in the building trades. Fast growing communities, such as Portland, Bend, Salem, and Eugene, have all experienced difficulty finding construction workers to keep pace with demand. Construction employers identified 88 percent of their job vacancies as difficult to fill, the highest rate of all major industry sectors in Oregon.

The occupation in Oregon with the most difficult-to-fill vacancies was construction laborers with over 1,500 vacancies identified as “difficult to fill” in 2016.

In the midst of this construction labor shortage and continued hiring demand, many are wondering where current construction workers are coming from. Are these in-migrants into the state? Are they leaving other industries lured by relatively high wages and consistent work? We analyzed wage records of Oregon’s 2016 construction workers and followed those workers back several years to see how their wages, hours, and industry of employment changed during this current expansion.

In-migration and New Entrants Major Sources of Construction Workers In 2016, there were around 118,700 individuals whose primary industry of employment was construction. The median hourly wage for these workers was $23.73 an hour, around 45 percent higher than the statewide

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median for all industries (~$16.25). This is one of Oregon’s largest middle wage industries with over 44 percent of construction workers making between $20 and $40 an hour. These construction jobs provide an important opportunity for those with lower educational attainment and less formal world experience to make a “living wage”.

If we track those 118,700 workers back in time, we see a significant inflow of construction labor into Oregon’s labor market. Nearly 25 percent (29,000) of the 2016 construction workers were not reporting wages in Oregon as recently as 2014. This means that these folks either recently moved to the state or they are new entrants into the state’s labor market. New entrants are primarily young adults and recent graduates, but in some cases these were previously discouraged or marginally

attached workers. The inflow of new workers is even larger if you look back to 2011 (five years prior) where around 40 percent of the 2016 construction workers were not in the state’s payroll system.

We cannot dig much further into those workers who did not show up in the payroll system previously. All we know is that the construction workforce is being boosted by in-migrants and new entrants into the labor force.

The Allure of Today’s Construction Industry We can dig deeper into those construction workers who have been employed in Oregon for the past several years. Have those workers moved into a construction job 10

from a different industry? Have they seen an increase in their wages? Have they begun working more hours as building activity increased?

Let’s tackle that first question. Are today’s construction workers long-time construction laborers? Our universe is 2016 construction workers who have been employed in Oregon over the past several years. Astonishingly, only around 77 percent of today’s construction workers were employed for a construction business as their primary job back in 2014. To put it another way, around 21,000 of today’s construction workers were working in Oregon, but in a different industry just two years ago. Around 5 percent of today’s construction workers were working in the professional and business services sector. A seemingly strange move, however these could have been office, administrative, or higher level business folks who took a similar role for a construction firm. A notable share of today’s construction workers were working in manufacturing (3%), retail trade (3%), leisure and hospitality (3%), and natural resources (2%) back in 2014.

A large number of job opportunities are the obvious reason why there has been significant movement of workers into the construction industry; however pay is also a major consideration. Those who were working in construction in both 2014 and 2016 saw their inflationadjusted median wage rise $2.84, roughly an 11 percent increase in real wages over two years – double the pace of wage growth for all workers in Oregon records in both 2014 and 2016. However, many of those moving from other industries into a construction job saw their median

are notably low as many of the jobs are entry level, parttime, and seasonal. The 2,500 construction workers who were working in leisure and hospitality back in 2014 saw their median hourly wage rise from $10.34 to $15.39, a whopping 49 percent growth in real wages in just two years.

Clearly, higher paying employment opportunities are drawing workers to the construction industry. In fact, we see the same story for today’s construction workers who had been working in the retail sector in 2014 with their median wage rising 45 percent in just two years.

As demand for construction labor increases and supply of labor dwindles, construction businesses are responding by offering more hours to their current workforce. Median hours worked increased by around 4 percent over the past two years for those employed as a construction worker in both 2014 and 2016. That is nearly the equivalent of working an additional two full-time weeks a year.

As with wages, it seems many folks were drawn to the construction industry for more consistent work. For instance, those who were working in leisure and hospitality in 2014, but found work in construction by 2016 saw their median hours worked jump by 48 percent, or the equivalent of an additional 7.5 full-time weeks a year. Those moving from seasonal industries saw the largest jump in hours worked, however those who came from less seasonal industries, such as professional and business services and transportation, also saw a significant increase in their hours worked.

The labor shortage in Oregon’s construction industry is real, but the market is responding as expected. Increasing wages and more consistent hours are attracting workers from other industries, as well as new entrants into Oregon’s labor market. There is a strong positive relationship between building permits and construction employment; as permits rise we see a gain in construction jobs. Over the past year, we have begun to see the growth in building permits slow, likely a welcome sign for those construction businesses struggling to find workers.

Damon Runberg wage rise by a much higher rate. Around 2,500 of today’s construction workers were employed in a leisure and hospitality business in 2014. These folks were working in hotels, restaurants, and recreation businesses, such as gyms, golf courses, or ski resorts. Wages in this industry

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Regional Economist Crook, Deschutes, Jefferson, Klamath, and Lake counties damon.m.runberg@oregon.gov 11

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DOWN TO BUSINESS A look at small business questions from the Southwestern Oregon Community College Small Business Development Center (SBDC).

How do I make sure I keep customers coming back to my business?

The short answer to keep customers coming back to your business is to provide what customers are looking for, at profitable but affordable prices along with great customer service. But what does it mean to provide great customer service? Unfortunately, the answer to this question depends on customer expectations and those are different for each person served.

Barry Moltz and Mary Jane Grinstead surveyed successful business owners for their book BAM: Bust a Myth, Delivering Customer Service in a Self-Service World and here is what they heard: • “Be personable and gracious toward the prospect or customer at all times.

• Treat every person with dignity and respect.

• Consider the other person’s needs and point of view first.

• Encourage customers to express their needs and desires.

• Listen to what the customer needs and desires.

• Provide customers with everything they expect, then give them service beyond what they expect.”

Providing excellent customer service is all about listening to customers and delivering on promises made to them.

Train employees to treat customers courteously. Know the limitations in your company and don’t over promise what can be done to meet a customer’s needs. If you can’t meet the customer’s expectations at least try to help them find a solution so they feel comfortable coming back in the future even if that means referring them to a competitor.

No response to telephone and email communications can be an area of poor service complaints from customers. If you are going to be out during regular hours of operation, leave a message to that effect along with an estimate of when you will be able to get back to prospective customers. Then, make sure you do reply to that customer. Even if you don’t have an answer immediately, your customers will appreciate the communication about when you will be able to respond to their request. Always check the junk email folder. Spam protocols can actually move wanted emails to the junk file.

Great customer service includes dealing with customer complaints in a timely manner. No one likes to hear complaints but that is your customer’s way of trying to communicate their unmet expectations. It can even be an opportunity to build a better customer relationship in the future.

Customers shop where they feel they get value for their money and they feel comfortable. Keep them returning by creating an environment they enjoy.

The SBDC is a partnership of the U.S. Small Business Administration, the Oregon Small Business Development Center Network, the Oregon Business Development Department and Southwestern Oregon Community College. Arlene M. Soto has been the Director of the Southwestern Small Business Development Center since July 2007. To ask a question call 541-888-7001, e-mail asoto@socc.edu, or write 1988 Newmark Ave., Coos Bay, OR 97420. Additional help is available at the OSBDCN Web page www.bizcenter.org.

By: Arlene M. Soto CMA, Southwestern SBDC Director

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Photo source: Condos CCSCA

HOW LUXURY HOUSING BECOMES AFFORDABLE

BY JOE CORTRIGHT

Although we at City Observatory–and others–have pointed out that building more high end housing keeps those with high incomes from moving down market and out-bidding those with less income for the existing housing stock, we still hear this argument. For remaining doubters, have a look at Noah Smith’s thought experiment, asking what we think would happen to housing prices if we suddenly demolished 10,000 units of expensive housing.

But today, we take a slightly longer perspective. Housing blogger Iain MacKenzie, who runs the definitive Next Portland website, tracking new housing and commercial developments in the Rose City, shared with us a couple of fascinating historical clips from the city’s paper of record, The Oregonian. They show that today’s affordable housing often started life as self-described “luxury” housing when it was originally built.

The first example dates back a half century, to the 1960s, when, in the wake of urban renewal, the city was building a wave of new apartments. The Oregonian of January 9, 1966 described the city’s booming market for new luxury accommodation: Luxury apartments, which start at $135 for a one bedroom unit and rapidly climb out of sight, have been sprouting in Portland at a breathless rate, and more are planned or a building. The total investment in such properties is certainly above the $100 million mark here.

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Source: Apartments.com

One of the most common refrains in the affordable housing discussion is “developers are targeting the high end of the market” and new apartments are just unaffordable.

One of these complexes was the Timberlee in suburban Raleigh Hills, a close-in suburban neighborhood. According to the Oregonian, the Timberlee on SW 38th Place was one of the most prosperous of the 13 apartment complexes it examined in its story, with 97 percent of its 214 units rented.

Of course, the Timberlee apartments are still around. While none of the units are currently for rent, according to Apartments.com, rents in the area run from about $1,000 for studios and one bedroom to $1,300 and more for two bedroom and larger apartments. By today’s standards, the Timberlee seems modest, and a bit dated, rather than luxurious.

The Timberlee apartments are typical of those that were built around the country in the 1960s and 1970s. As the City Observatory has chronicled, similar vintage apartments in the Atlanta suburb of Marietta, started life as the preferred housing of (mostly white) young couples and singles, but as they aged, became so affordable that they constituted low income

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housing. The city spent $65 million of taxpayer money to buy and demolish these apartments, displacing hundreds of families.

Iain’s second clipping goes back more than a century, to Christmas Day, 1910, when Portland was enjoying a small construction boom– interestingly, triggered by the advent of a tougher building code that would have made apartments more expensive or impossible to build in some neighborhoods. Just as with today’s inclusionary housing ordinance, there was a land rush as developers filed for building permits in advance of the deadline.

apartments are today described as studios. They have a separate living area, kitchen and bathroom (each of which, a century ago, merited counting as a separate room). In an era when a large fraction of urban residents were boarders in boarding houses, a private kitchen and bathroom may indeed have been a luxury.

But back to our story.

The 1910 article plays up the luxury of the new dwellings under construction: The purpose of the builds is to establish a model for highclass apartments... The building will follow the latest style of construction in vogue in New York, and will embody the extreme of luxury with every possible attention given to comfort.

Some new features in the way of modern conveniences will be introduced, the aim being to attract the desirable class of patrons, those who will be willing to pay as high as $150 a month for the five and six room apartments which they house will contain.

(For context, $150 in today's dollars would be more than $3,650). One of the new luxury apartment buildings constructed in 1910 was the Belmont Court, on the city’s growing East Side. Plans called for a modern 24 unit apartment building with a range of conveniences: Some fine dwellings of this class are being planned for the East Side. MacNaughton & Raymond have designed for E. L. Taylor a three-story brick veneer apartment-house 50×100, to be built at East Fifteenth and Belmont Streets and to cost $30,000. It will have seven three-room apartments on each floor and 24 in all, including the janitor’s quarters and two other suites in the basement.

More than a century later, the Belmont Court building still stands. In fact, one of its units is for rent right now.

According to Zillow, average apartment rents in Portland are about $1,600 per month. With studio apartments renting at just over $1,100 they’re not exactly cheap, but they cost less per square foot than newly built units, and with a Walk Score of 92, they're located in a neighborhood where one can conveniently live without a car.

Source: Apartments.com

Here’s the takeaway: New housing is almost always built for and sold to the high end of the marketplace. It was that way a hundred years ago and fifty years ago. But as it ages, housing depreciates and moves down market. The luxury apartments of two or three decades ago have lost most of their luster, and command relatively lower rents. And the truth is, that’s how we’ve always generated more affordable housing—through the process economists call “filtering.” And the new self-styled “luxury” apartments we’re building today will be the affordable housing of 2040 and 2050 and later.

What causes affordability problems to arise is when we stop building new housing, or build it too slowly to cause aging housing to filter down-market. When new high priced housing doesn’t get built, demand doesn’t disappear, instead, those higher income households bid up the price of the existing housing stock, keeping it from becoming more affordable. Which is why otherwise prosaic 1,500 foot ranch houses in Santa Monica sell for a couple of million bucks, while physically similar 1950’s era homes in the rest of the country are either now highly affordable–or candidates for demolition.

Special thanks to Iain MacKenzie and Next Portland for their original research ideas and sharing these vintage news articles.

Strong Towns member Joe Cortright runs the think tank and blog, City Observatory. This essay is republished from his site with permission.

Another interesting historical change: Described as three-room apartments when they were built, the Belmont Court

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Rogue Creamery, Grants Pass Teamed up with Energy Trust of Oregon to bring energy-efficient solutions to their dairy farm The owners of Rogue Creamery know that awardwinning cheeses like Crater Lake Blue and Oregonzola begin in the barn with happy cows.

The 80-year-old company teamed up with Energy Trust to bring energy-efficiency and renewable energy solutions to its 75-acre dairy farm, while also creating optimal living conditions for its 120 grass-fed cows. Rogue’s barn has a polyethylene roof to bring in daylight and LED lighting that automatically optimizes lighting levels. Together these technologies make it feel like a perfect sunny day, contributing to contented cows and robust milk production.

Energy Trust paid a cash incentive of $29,426 toward the upfront cost of the LEDs and controls, which reduced the farm’s annual energy costs by approximately $14,600. “The lighting provides comfort and safety for both cows and employees working during evening and early morning hours,” said David Gremmels, owner of Rogue Creamery.

ESTIMATED ANNUAL GENERATION: 11,00 KWH David Gremmels, owner of Rogue Creamery and Friends

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To further offset energy use, Rogue sought guidance from Energy Trust on integrating a solar system onto the roof of the milking parlor. An $8,910 Energy Trust cash incentive for the 9.9-kilowatt system enabled Rogue to generate 11,000 kilowatt hours annually of clean energy to power a mechanized milking station.

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primary product is milk, the official beverage of the state of Oregon. The milk is sold to dairy manufacturers who then sell the milk and use it to make cheese, butter, yogurt, ice cream, and other dairy products. Dairy manufacturers usually employ more people than dairy farms and are less numerous. Together, they comprise what we generally refer to as the dairy industry in Oregon.

Oregon Dairy Production Grows as Dairy Prices Stabilize in 2017

by Dallas Fridley

The dairy industry, like other agricultural and manufacturing industries, has undergone significant changes since the late 19th century. Consolidation, technology, mechanization, and increased competition changed Oregon’s dairy industry. Today, dairy is still thriving thanks to strong demand for its distinct, high quality products.

Production and Value Rising milk prices lifted Oregon’s sales to a record $650 million in 2014. Milk production reached 2,550 million pounds in 2014, a slight gain of 1.4 percent over 2013. The value of milk sales, however, climbed nearly 23 percent in 2014, an increase of $122 million over 2013’s $528 million.

Milk production held steady in 2015 then rose by 1.6 percent in 2016 to a new high of 2,593 million pounds.

Despite record production, the value of sales fell to $465 million in 2016, a loss of 1.6 percent 2015 its Eagleover Point Golfand Course lowest total since 2010’s $412 million. In 2010, production totaled 2,399 million or about 8 percent below

2016.

Lady Slippers

Dairy has a long tradition in Oregon. Many of Oregon’s early pioneers were dairy farmers and manufacturers.

Oregon dairy products are recognized worldwide for their high quality and employment is growing as a result. Dairy farmers and manufacturers provide jobs throughout the state. Dairy farms in Oregon were historically small, often employing a family and a few other individuals, but recent trends show dairy farms are getting bigger. Their

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Looking back to 2002, Oregon’s milk production rose tremendously, climbing nearly 22 percent or 376 million pounds to reach 2,093 million pounds. Production gains continued over the next two years, reaching 2,270 million pounds in 2004, an increase of 8.5 percent over

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2002. Production steadied at that level for several years before Oregon milk producers expanded production again in 2010, leading to an increase of 151 million pounds or 6.7 percent followed by a gain of 80 million pounds or 3.3 percent in 2011.

percent over the year ending in August 2009, turning the corner in May 2010 with a gain of 1.0 percent. Consumer prices for ice cream and other dairy products were far less volatile than the price trends experienced by milk and cheese, at least on the downhill side.

Volatile Milk Prices Fall but Stabilize in 2017

Demand for dairy products decreased rapidly and exports slowed. Suddenly, there was a supply and demand imbalance. Milk prices dropped to a point where it made more sense for some farmers to slaughter some of their cows rather than milk them. To help the struggling dairy industry through the recession, the U.S. Department of Agriculture announced in August 2009 a temporary increase in prices paid for dairy products through the Dairy Product Price Support Program. This program essentially sets a price floor for butter, cheddar cheese, and nonfat dry milk for dairy manufacturers in the U.S. If the price of these dairy goods drops to specified levels, manufacturers can sell their goods in bulk to the government. USDA also took other steps to help the dairy industry in the recession, including the reduction of dry milk inventories and reactivation of the Dairy Export Incentive Program, which helps U.S. dairy exporters meet prevailing world prices in markets where U.S. dairy products are not competitive due to subsidized dairy products from other countries.

Most of the milk and dairy products produced in Oregon and the U.S. are consumed domestically, but supply and demand of dairy products globally can affect U.S. prices.

Consumer prices for milk experienced a price surge leading up to the Great Recession, rising by 20.3 percent over the year ending in November 2007. Higher demand for dairy products – in particular, dry milk exports to China and Southeast Asia – pushed prices higher.

Drought in Australia and New Zealand, other major milk exporters, also drove prices up. Between 2006 and 2008, the total export value of U.S. milk solids more than doubled, while total export volume increased by 22 percent. U.S. dairies increased milk production to try and keep up with the increased demand. Cheese prices lagged milk somewhat, reaching an over the year gain of 14.9 percent in June 2008.

Meanwhile, the cost of production for dairy products was going up as well. Transportation costs increased with rising oil prices. Feed prices also increased. In particular, the price of corn increased sharply due to government mandated increases in the use of ethanol (made from corn) in gasoline, higher transportation costs, increased worldwide demand, and supply shortages. Consumers inevitably felt these increased production costs and supply shortages in the form of higher prices for dairy products.

As the Great Recession took hold, milk prices fell dramatically, dropping by 18.4 percent over the year ending in July 2009. Milk prices continued to fall, with recovery taking hold in March 2010 when prices rose by 2.9 percent over the year. Cheese prices fell by 10.8

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Milk prices surged by 13.1 percent over the year ending September 2011 and the trend continued through April 2012. In 2011, the price received by Oregon dairy farmers averaged $21.40 per 100 pounds of milk, $3.10 above 2008 and a far cry from the $13.70 farmers received in 2009.

Milk prices received by Oregon farmers rose to a record $25.70 in 2014 – but that peak was short lived, falling to just $18.60 in 2015, a loss of $7.10 or nearly 28 percent per 100 pounds. Through the first four months of 2017, milk prices rebounded somewhat, rising to $19.85 per 100 pounds, producing a gap of -$5.85, 23 percent below the 2014 peak.

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U.S. Dairy Export Trade Data

According to the U.S. Dairy Export Council, U.S. Dairy exports totaled $4.8 billion in 2016, a drop of 10 percent from the prior year and a significant drop from 2014 which brought in a record $7.2 billion. Milk exports represented 14.2 percent of total U.S. production in 2016, a slight increase over 2015 (14.0%).

During the first quarter of 2017, cheese, milk powder, and whey products represented more than two-thirds of U.S. dairy exports. Dairy export volumes rose by 14 percent during the first quarter of 2017 and values climbed by 17 percent (compared with the first quarter of 2016). Total dairy exports during the first quarter of 2017 were valued at $1.32 billion. March export values alone reached $482 million, a 22-month high. Monthly dairy exports have topped year-ago volumes for the past 10 months.

Nonfat dry milk/skim milk powder is typically consumed elsewhere, with 54 percent of U.S. production in the first quarter of 2017 exported. Whey and lactose products are likewise a mainstay for trade markets with 70 percent of U.S. lactose production and 42 percent of dry sweet whey exported. A much smaller share of total U.S. cheese production, 5.8 percent, found its way to export markets in the first quarter of 2017. Based on volume, first quarter 2017 whey exports were up by 27 percent over the year, nonfat dry milk/skim milk power exports increased by 19 percent and cheese shipments rose by 12 percent.

average around 2,520. Dairy product manufacturing rose by 34.1 percent or 3.4 percent annually from 2000 to 2010. Employment reached a peak of 2,620 jobs in 2014, gaining around 100 jobs. But a change in industry code cost dairy product manufacturing about 500 jobs in 2015. Employment rose to around 2,330 in 2016, an increase of 6.6 percent.

In 2016, Oregon dairy product manufacturing, which includes dairy products (excluding frozen) and ice cream and frozen desserts, averaged 480 jobs and 1,850, respectively.

Dairy product manufacturing payroll grew to $120.9 million in 2016, an increase of $6.5 million or 5.7 percent over 2015. Ice cream and frozen dessert manufacturing wages averaged $42,462 in 2016. Dairy product manufacturing (excluding frozen) enjoyed much higher average wages, at $54,411.

Oregon’s manufacturing industry paid an average $67,436 in 2016 – although food manufacturing paid less, at $40,453. Scooped or poured, dairy manufacturing paid above average wages when compared with the food manufacturing industry group.

Dairy Product Manufacturing

Americans Drinking Less Milk but Consuming More Dairy Products

Dairy product manufacturers add value to dairy farm production – processing raw milk into butter, cheese, ice cream, and condensed dairy products. Dairy manufacturing followed a trend of moderate but steady growth over 2000 to 2010, gaining about 640 jobs to Southern Oregon Business Journal

Data from USDA show that per capita fluid milk consumption in the United States steadily declined between 1975 and 2015. Per capita milk consumption fell to 155 pounds in 2015, about 37 percent less than 1975’s 247 pounds. Why the decline? Competition from other beverages, including carbonated soft drinks.

Despite the steady decline in fluid milk consumption, dairy products as a whole have generally enjoyed steady growth, led by consumption of yogurt and cheese in

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particular. Between 1975 and 2015, average annual cheese consumption rose by 146 percent from 14.3 pounds per person to nearly 35.1 pounds. In 2016, milk and cheese manufacturing employed 79 percent of dairy manufacturing workers in Oregon, so the consumption trends of these two products are very important to Oregon’s dairy industry.

Cheddar cheese consumption per capita increased 75 percent between 1970 and 2015, from a little less than six pounds per person to just over 10 pounds.

Mozzarella cheese consumption per capita surpassed cheddar in 2007 and its popularity continued to grow. Back in 1970 mozzarella cheese consumption averaged just 1.19 pounds per capita. By 2015 mozzarella cheese consumption grew to 11.27 pounds per capita. Could pizza be the reason? Based on consumption trends, there’s good reason to believe cheese producers, and the dairies that provide them with milk, will continue to see growth in the future.

Dairy Farming – Employment and Payroll

Dairy farms set an employment record in 2016, with about 1,615 covered jobs (covered by Oregon’s unemployment insurance system). Over the past 16 years (going back to 2000), dairy farm employment grew by just over 700 jobs or about 80 percent. Oregon dairy

2016 Annual Export Trade Data Total value of U.S. dairy products $4.8 billion

Processed cheese and cheese content consumption reached a plateau in 1996 but these products have enjoyed resurgence in recent years, regaining some of that 90s luster. In 1996, Americans consumed nearly 8.8 pounds of processed cheese per capita. Processed cheese consumption fell during the Great Recession bottoming out at 6.36 pounds per capita in 2013.

Consumption of processed cheese bounced back to 7.35 pounds per capita in 2014, holding steady in 2015.

Cheese content products followed a similar consumption trend, bottoming out in 2013 and then rebounding in 2014. Taken as a whole, processed cheese product consumption per capita remains about 2.6 pounds below its grunge-era glory-days.

farms averaged about 12 jobs in 2016, with 132 employer units.

From a regional perspective, the Willamette Valley dominated dairy employment back in 2000, with 533 jobs or nearly 60 percent of Oregon’s total. The Willamette Valley hit its peak employment level in 2008, with just over 700 jobs. Over time, a more balanced regional employment picture emerged, with the Willamette Valley holding 600 jobs or 37 percent of the state total in 2016. The Coastal district increased its dairy employment from 215 jobs in 2000 to 510 jobs in 2016, more than doubling its total. The Coastal district also increased its share of Oregon dairy employment, rising to 32 percent in 2016. The balance of state represented just 17 percent of Oregon’s dairy farm employment in 2000 with about 150 jobs. By 2016 the balance of state region provided just over 500 dairy jobs or 31 percent of Oregon’s total. More significant, the balance of state region accounted for half of Oregon’s dairy farm employment growth since 2000. The Coastal region also contributed significantly to dairy employment, representing 41 percent of Oregon’s growth since 2000.

Along with new jobs, dairy industry payrolls grew to $59.2 million in 2016 and average pay rose to $36,656.

Dairy industry workers in the Willamette Valley district earned just above Oregon’s average pay, at $37,573. The Costal district paid an average of $33,121 in 2016, below Oregon’s average, while the balance of state rose to the top, averaging $39,169.

Fewer but Larger Dairy Farms Historically in the U.S., small, family-owned dairy farms with less than 100 cattle led milk production. Since the 1970s, large farms with over 1,000 cattle have become much more commonplace, displacing or purchasing smaller farms. Large farms are able to produce milk at a

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lower cost than smaller farms. As a result, productivity in the industry has risen, putting downward pressure on dairy prices. This is great for consumers, but difficult for small farms that face tough competition from larger farms.

Oregon between 2002 and 2007. In only five years, the number of dairy farms in Oregon fell by nearly half, from 1,133 in 2002 to 596 in 2007. Meanwhile, the number of milk cows increased slightly to 116,788, giving Oregon an average of 196 cows per farm; the U.S. average was 133.

The average size of an Oregon dairy nearly doubled in the five years between 2002 and 2007, with Oregon losing an average of nine dairy farms per month.

U.S. dairy herds continued to rise, however, to average 144 head in 2012 – although still well below Oregon’s 183.

Richard Obrist, Tillamook dairy farmer and member of the Oregon Dairy Farmers’ Association, said the Tillamook County Creamery Association (TCCA) used to have over 500 members in the 1950s. “In the past, family farms were passed down from generation to generation,” said Obrist. “If there wasn’t a family member to take on the farm, many of those farmers retired when they could no longer operate the farm.”

The trend toward larger farms intensified in the 1990s.

According to the USDA, in 1992, about half of all dairy cows were on dairy farms with fewer than 100 head, approximately 135,000. By 2006, there were about 58,000 dairy farms left with fewer than 100 cows, accounting for less than 25 percent of the U.S. dairy herd.

The average size of an Oregon dairy mirrored that of the U.S. between 1974 and 2002. In 1974, Oregon dairy farms averaged 21 cows with about 88,000 head and over 4,200 farms. By 2002, the average Oregon dairy reached 103 cows. But things changed significantly in

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Obrist said the cooperative structure of the TCCA has been crucial to the survival and success of small farms in Tillamook. “If it wasn’t in place, the farmer would not only have to run the farm, they’d be responsible for marketing and selling the product,” states Obrist. “The co-op also does a great job of working with the farmers to help them overcome issues that affect the quality of their milk.” Today the farmer-owned co-op includes nearly 100 farmer families with many farming in Tillamook County for multiple generations. The TCCA celebrated its 105th anniversary in 2014, making dairy products for over a century.

In Boardman, the face of dairy looks a little different.

Boardman is located in Morrow County along the Columbia River. In 2001, the TCCA built a new cheese factory in Boardman. Tillamook area farmers couldn’t keep up with the TCCA’s demand for milk, so another source was critical to the expansion of the creamery.

Unlike the home factory in Tillamook, the Boardman plant does not depend on lots of small farms to supply it milk. It depends on larger ones like Threemile Canyon Farms. Threemile Canyon Farms is a mega dairy with 93,000 acres of land in ownership and 24,000 dairy cows. The cows produce more than 1.4 million pounds of milk each day – about 165,000 gallons or 20 milk tankers – each day. This is one example of the trend toward larger farms in the dairy industry. Lost Valley Farm, recently approved by the Oregon Department of Agriculture and Department of Environmental Quality in early 2017, will add 30,000 cows on 7,288 acres near Boardman.

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Conclusion

Dairy manufacturers continue to produce high quality dairy products, from the award winning bleu cheeses of Rogue Creamery to the fresh, delicious milk at your local grocery store. They also provide good paying jobs throughout the state, in urban and rural areas.

Dallas Fridley Regional Economist

Gilliam, Hood River, Morrow, Sherman, Umatilla, Wasco, and Wheeler counties dallas.w.fridley@oregon.gov 1610 9th Court Hood River, OR 97031 (541) 645-0005

Milk prices stabilized in early 2017 following several years of volatile prices. The economy has improved and demand is growing. The number of dairy farms, dairy cattle and dairy employment continue to rise, fueled in part by mega dairies.

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Nurseries back on top as Oregon’s #1 agricultural commodity After falling from the top perch of Oregon agriculture for the past two years, greenhouse and nursery products have recaptured the number one position among Oregon’s diverse agricultural commodities in terms of production value.

Cattle and calves have returned to runner-up status after a couple of strong years while the rest of Oregon ag’s top ten list contains the same names as last year with a slightly altered order.

Newly released statistics from USDA’s National Agricultural Statistics Service (NASS) provides a preliminary picture of 2016’s crop, livestock, and fisheries value of production.

With Oregon producing more than 220 commodities as part of its agriculture and fisheries, there will always be some winners and some losers any given year. Last year’s results show that a majority of the state’s leading agricultural sectors grew a bit although a handful saw a decrease.

http://odanews.wpengine.com/nursery-back-on-top-as-oregons-1-ag-commodity Southern Oregon Business Journal

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Proper forest road construction helps keep streams healthy, according to study

Photo courtesy Ivan Arsimendi.

An excess of fine-grained suspended sediment in forest streams has long been known to harm fish and other organisms and degrade the aquatic ecosystem. The silt clogs the gills of fish, makes it harder for them to see and suffocates their eggs. Even relatively small changes in suspended sediment concentrations can adversely affect aquatic biodiversity, Arismendi said.

Researchers measure the degree of hydrological connectivity of an unpaved road.

CORVALLIS, Ore. – Logging roads in the uplands of the northern Oregon Coast Range aren’t sending enough sediment into streams to harm fish and aquatic insects, according to a new Oregon State University study.

Ivan Arismendi, an aquatic ecologist in OSU’s College of Agricultural Sciences, and his colleagues investigated whether current road-building practices were sending excessive sediment into the water. They sampled five streams above and below unpaved roads in the Trask River watershed in the northern Oregon Coast Range from 2010-2013.

They found that roads in these watersheds were contributing only minimal levels of silt to the streams— not enough to be “biologically significant” for aquatic life, Arismendi said.

Their findings, he said, suggest that current road-building practices are solving an important environmental challenge associated with logging in the steep, wet forests of the Oregon Coast Range.

The study is published in the journal Water Resources Research.

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Decades ago, forest roads were built by bulldozers dumping unstable material down steep slopes. Early forest roads and their ditches also delivered water and sediment directly into streams. By the 1980s, forest management practices were being refined to mitigate and minimize stream sedimentation.

Road builders hauled away the displaced soil instead of leaving it to be washed downhill. The practice now, said Arismendi, is to route forest road runoff to the hillslopes instead of into the stream.

The research team included scientists from OSU, the U.S. Forest Service Pacific Northwest Research Station, Weyerhaeuser Co., and the Oregon Department of Forestry. They sampled before and after road construction and after forest harvest and hauling.

They tested whether the differences between paired samples from above and below road crossing exceeded various biological thresholds. They predicted there would be significantly higher suspended sediment and turbidity, which is a measure of cloudiness in water.

The team was surprised to find only minimal increases, said Sherri Johnson, a scientist with the U.S. Forest Service Pacific Northwest Research Station and co-author of the study. They did find that concentrations and transport of suspended sediment seemed to be highly influenced by local conditions, such as one case of a streamside tree uprooted in a windstorm.

The research has the potential to provide scientists, policy makers, and resource managers with an expanded understanding of the effects of contemporary forest

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road practices on fine sediment in streams, Arismendi said.

“A main objective of Oregon’s Forest Practices Act is to protect and maintain healthy streams,” said Mark Meleason, a riparian and aquatic specialist with the Oregon Department of Forestry and co-author of the study. “This study found that best management practices applied to the management of several roads within active timber sales was effective in reducing fine sediment delivery to streams.”

Liz Dent, chief of the Oregon Department of Forestry’s State Forests Division and co-author of the study, said, “ This research is one of several studies that has been published from the Trask Watershed Study – a 10-year, multi-million-dollar study on the effects on contemporary forest practices on the aquatic environment.”

The Trask River watershed is located near Trask Mountain. The streams draining the study area flow into the Trask River, which flows into Tillamook Bay. The watershed is owned and managed by the Oregon Department of Forestry and Weyerhaeuser Co. with a small portion belonging to the Bureau of Land Management.

The research was funded by the Oregon Forest Industries Council, the National Council for Air and Stream Improvement Inc., the Oregon Department of Environmental Quality and Weyerhaeuser Co. Author: Chris Branam Source: Ivan Arismendi

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by John Hunt

Curiosity and Trust: A Manufacturing Leadership Guide “Results driven.” This is how you might have described a boss that I once had. I was a fairly new manager at the time, and had just been promoted to run a department that was struggling with both delivery and quality. My boss was definitely results driven, which on its own isn’t a bad thing, but there was something missing from his approach that kept him from being a leader – someone I wanted to follow. Instead of creating a desire to win, he created an environment where we worked to avoid punishment.

I don’t want to spend time today writing about leadership styles, but I would like to talk about a couple of behaviors that get in the way of leadership – which I will define for my purposes as the ability to motivate people through change and challenges – and offer some suggested behaviors to focus on instead.

Leadership Compromisers: Distance and Blame My boss engaged in two behaviors that I’ve seen in others from time to time that compromised his ability to connect with me and the rest of his management team: Distance and Blame.

In terms of distance he had three habits that I think of as contributing to the sense of “distance”.

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He managed from either his office or the conference room. You rarely saw him on the production floor and if you did, chances were it was not going to be a pleasant visit.

He managed almost entirely from lagging indicators such as production reports and financial metrics and had very little understanding of the processes and behaviors that influenced the results.

When in conversation with him, he told you what he wanted you to hear and had little patience for questions and answers that differed from what he wanted to hear.

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As for blame, if the results did not match the goals he had set, then someone had failed and needed to be held “accountable”, end of story. There was very little consideration given to the systems, processes and underlying causes of the problems we were encountering. If there was a problem, someone should have fixed it before it ever got to his attention. Instead of blame and distance, I recommend Presence and Curiosity.

Leadership Enablers: Presence and Curiosity To be present, I ask managers I work with to consider a few basic techniques that have been shown to increase their sense of presence, as a serious side-benefit, also builds trust with others.

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Breathe – A time-proven technique to increase presence is to learn how to pause and breathe deeply on a regular basis.

At the beginning of the day while you consider what awaits you. At the end of the day while reflecting on what went well and what can be done differently tomorrow. And, most importantly, whenever you notice that you are strongly reacting to something happening around you… take the opportunity to pause, breathe deeply and relax before entering the situation.

You will find that it improves your mental clarity and problem solving skills when you give yourself a chance to step off the emotional rollercoaster of events around you.

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Go See – The Japanese refer to it as the “Gemba” or “where the action is.”

In western management, we sometimes call it “management by walking around”. I strongly encourage the leaders I work with to create intentional times when they will make the rounds on the production floor and review specific process indicators with their team.

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There are two things that need to be in place for this to be effective: • 1) timeliness: everyone needs to know when to expect you.

• 2) Clear expectations: this can’t just be a “how’s it going” meeting, there need to be clear indicators of success established ahead of time that are visual for everyone to see.

• Listen – Take a pause from thoughts and concern in your head and really listen to what people saying to you (and not saying) when you are on the production floor.

Bonus trick: take a two heartbeat pauses after the person who is speaking finishes ,before you reply. You will find this is all the time you need to formulate a response. By waiting, you won’t miss what they are saying as you prepare your retort. In addition, those seconds of silence create a strong sense of presence for the people around you.

Leadership Enabler: Curiosity I ask leaders I work with to spend more time asking questions and less time telling people what they think. There is a pattern of asking, formalized by Mike Rother in his book “Toyota Kata”, that I have found to be very powerful over the years. It goes like this:

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What is actually happening right now?

The difference between these answers is often referred to the “Gap” and its where most of our individual coaching and organizational learning stems from. This gap does not have to be seen as a problem, in fact it works best if we see it as an opportunity to learn and grow.

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What is your next experiment to overcome this obstacle?

The idea here is to worry less about finding the silver bullet and to work more with your team on developing their problem solving and planning skills. Focus on one or two core issues at a time; don’t try to solve everything at once.

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When can I come see what you’ve learned?

Allow the other person to establish the initial timeline, if it is unacceptably long, ask: “what would need to be different to complete the experiment sooner?” Chances are they are very aware of the obstacles in front of them and would love either the permission or help in removing them.

Even if you already think you are good at being present and acting from a place of curiosity, I would encourage you to continue to practice. At the end of the day results matter, but it’s our processes and individual behaviors that deliver those results. You need to be there and be curious if you really want to move your organization in a positive direction.

What is the expected situation right now?

This could be visible, like a production target on the board or it could simply be a verbal question. The idea is to make sure that you and everyone around you is on the same page in terms of “clear expectations”.

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What obstacles are standing in the way, right now?

Allow the person you are working with to own this answer. As a leader this is where you can really start to understand what the process short comings might be and also where this individuals next opportunity for development lives.

Southern Oregon Business Journal

John Hunt Image credit: Upsplash

John has 10 years of manufacturing experience in a wide range of roles including process engineering, quality engineering, continuous improvement and manufacturing management. His personal focus has been on blending continuous improvement tools and philosophy into the daily practice of managing people and processes with experience implementing Lean methodologies in both manufacturing and office environments. John has been described by peers and prior employees as professional and analytical as well as very easy to work with and personable. https://www.omep.org/lets-join-forces/omep-network/

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What’s My Business Worth?

by John Anderson | Smart Business Exit Series

All business owners want to know – “What is my business worth?”

Knowing your business’ street value is important. Not what you think it may be, but an objective dollar amount based upon sound valuation principles. The value of a business is more dynamic than that of a house or car.

Significant components to establishing your shop’s value include: • • • •

Tax returns Tangible and intangible asset lists Staff and sales history Market and competitive conditions

Tax Returns While the three latest tax returns are very important, a healthy profit trend over many years is evidence of good management. Assets, debt, salaries, inventory, and equipment are evaluated along with sales, gross, and net profit.

Tax returns showing respectable net profit despite sales fluctuations indicate good managers monitor financial statements and make adjustments. Sound management practices signal astute buyers of a desirable enterprise to acquire and value estimates rise.

Assets Tangible assets include your inventory and equipment. Have a spreadsheet for each - showing equipment brands with model numbers and inventory part numbers with distributors. Show purchase price and date, current depreciated value, and today’s fair market value. Ask yourself what you would pay for it. On the equipment list, have photos of what’s most valuable. Old inventory can be worth less than you paid. Obsolete equipment and parts are best cleared from your business.

Intangible assets include your customer list, website, social media, phone number, and vendors. For these intangibles to be considered, the seller needs to organize and prove value. Have spreadsheets with customers’ purchasing history, ranked best to least, contact names, phone and email addresses. Tie this together with your current strategic and marketing plans.

From the tax returns - and good and current accounting - establish how your company compares to similar shops recently sold or now on the market. Financial ratios of net profit to sales, net to equity, assets to liabilities, receivables to payables, and others can be compared to industry averages and target benchmarks.

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A healthy company culture today, has a mix of new hires and stable employees focused on pleasing customers with quick job turnaround. Too many new hires or no new hires are both weaknesses. You want a millennial on staff to help with social media and communicating with your growing number of millennial customers. Train the new hires with written practices and systems for getting products out the door quickly. A systems-based business is worth more than one with little in written procedures.

Many industries have formulas for determining business value. For example: For pharmacies, it’s been $10 plus or minus times the number of prescriptions per year. For magazines and newspapers, it’s a function of their paid subscriptions. In the auto repair business, one formula has been 35-40% of annual gross sales plus inventory.

We recommend getting a certified valuation once every three to ten years. They can cost $3,000 and up depending upon the size of your business. It’s possible that during the valuation process, a more accurate value formula can be built for your business which you and your accountant can apply annually to be sure you’re making progress to reach your value targets.

The Internal Revenue Service code makes it advantageous for business buyers to acquire assets while sellers do best if they sell the business. The very act of identifying and establishing the value of your business beyond your assets increases the business value and your ability to sell it.

There are television shows of firms that specialize in preparing a house or a business for sale. Clever staging and marketing can result in competitive bidding and a substantially higher price than the more conservative estimate a certified valuation expert may determine that the IRS will accept.

The suggested price that valuation experts offer can also vary because of volatile market conditions at different times of the year and changing local or national economic conditions.

Adding to this is the differences between various types of buyers. Family, employees, competitors, Investors, and strategic buyers look for different business attributes and will be willing to pay based upon them. If you prepare your personal and tax circumstances, you can put as much twice as much in your retirement portfolio from sale proceeds.

Your business is worth what you make it worth. Like a car, if it runs you probably can get someone to pay you something, but not much. Make everything about your business sparkle in the sun and people want it and will pay top dollar. Valuation is an ongoing process. Determine what you want it to be worth. Then, make it worth more than that, and make your Smart Exit™!

John E. Anderson, CEO of Be Cause Business Resources and Author of Smart Exit™ Steer Your Business to Success and Companion Workbook You can reach John Anderson via email at john@becausebusiness.com or by phone at 360-200-5840. becausebusiness.com • smart-exit.com • linkedin.com/in/johnanderson

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OUR MISSION “To provide a reliable business information tool for the economically curious,

professionally inspired, and acutely motivated.”

PROVIDING IMPORTANT INFORMATION TO BUSINESSES IN THE SIX COUNTIES OF SOUTHWEST OREGON www.southernoregonbusiness.com

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