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Start Your Business Entrepreneurs

The State of Small Business: Oregon

The State of Small Business: Oregon

As part of our yearlong project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Oregon's more than 350,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

It's an exciting time to be an entrepreneur in Oregon. The economy is moving along at a healthy pace and local communities are committed to helping their small business owners succeed. Entrepreneurs in Oregon also enjoy the benefits of outdoor and healthy lifestyle activities, which help to attract tourists as well as potential employees. The small business owners who spoke to Business News Daily often expressed a sense of pride in being from Oregon.

However, entrepreneurs in Oregon have plenty of difficulties to contend with as well. Exploding real estate costs, both residential and commercial, have coincided with rapid population growth. And while the economy is healthy enough to support very low levels of unemployment, small business owners are hard-pressed to fill new positions, even as the labor force grows. Many entrepreneurs also said that high state taxes are a constant challenge.

[See Business News Daily's complete coverage of the State of Small Business in the U.S.]

One of the biggest benefits of owning and operating a small business in Oregon is the strong local support for small business, entrepreneurs told Business News Daily. Oregon's consumers like knowing who is behind the businesses they patronize, and that means that small business owners feel more than welcome in the state's communities.

"Portland is all about small businesses," Tom Nadeau, owner of handcrafted furniture store Nadeau, said. "We try as best as possible to give our store a 'boutique' or 'local' feel."

And the support extends beyond a loyal customer base. Oregon is home to myriad development organizations that offer mentorship and potential financing opportunities to entrepreneurs. In addition, many small business owners said local governments often maintain programs throughout the state to benefit small businesses and startups.

"I found a lot of support from local business organizations and local government programs designed specifically to help small businesses and entrepreneurs succeed," Rich Dubnow, founder and president of Image3D, said. "There's a lot out there, and a lot of it is free to small business owners."

Oregon is an economy on the rise, experiencing relatively quick and robust growth. In 2014, Oregon's economy grew by 2.4 percent, which was slightly higher than the national economy's rate of growth over the same time period. Not only has a new industry rapidly risen to prominence since the state legalized recreational cannabis, but it has also become a hub for tech startups.

"With our state's recent legalization of recreational marijuana, that industry has obviously experienced a boom, but it is not the only market seeing growth in Portland for entrepreneurs," Sean Ray, partner at Portland-based law firm Barran Liebman LLP, said. "There is also a thriving tech market and software industry, as well as for makers of outdoor gear and wear, food-processing companies, and the food and beverage industry, including microbreweries and wineries."

As Oregon's population and employment levels continue to increase, so does the average per capita personal income. Since 2012, the average Oregonian's annual income has increased at an impressive clip. According to the U.S. Bureau of Economic Analysis, incomes rose by 4.3 percent on average from 2014 through 2015 alone; the average Oregonian brought in about $42,974 last year, which was about 90 percent of the national average.

"It feels to us like it's really going well, the economy is growing and so are the number of jobs," Dubnow said. "We've had to add a new person to our team about every six months. As the recession is subsiding, it seems like people are regaining confidence and spending more."

Hospitality and outdoor recreation are two major industries in Oregon. Tourism, in general, injects about $10.3 billion into the state's economy annually, according to an estimate from the Oregon Tourism Commission. Attracting visitors from out of state helps provide a boost to entrepreneurs in Oregon every year, particularly those who own hospitality and entertainment businesses.

"The tourism climate is great," Kristin Fintel, the innkeeper at Chehalem Ridge Bed & Breakfast, said. "Oregon — especially our pinot noir and food scene — is getting a lot of national and international attention, which is bringing visitors to the state."

And the statistics show that a lot of people who come to visit never leave. Oregon's population is growing at a rapid pace, and zipped past 4 million people by mid-2015, according to the U.S. Census Bureau. Most of that growth was driven by the expansion of the greater Portland metropolitan area, which is home to more than 2.35 million people.

"Oregon's population is growing, and Portland in particular attracts a lot of talented people," Dubnow said. "An entrepreneur wishing to start a business in Oregon shouldn't have too much difficulty attracting talented employees. Oregonians like to support small and local businesses over big-box stores, which is good for entrepreneurs."

Oregon does not maintain a sales tax, but as a result, its income taxes and property taxes are moderately high. Oregon's corporate income tax system has a two-bracket structure, where corporations pay 6.6 percent on the first $10 million of income and 7.6 percent for all income beyond $10 million. The state's personal income tax rate comprises four brackets, which range from 5 percent to 9.9 percent. In Oregon, property taxes vary from district to district, depending on the valuations within each of the 1,200 taxing districts.

"Oregon is notoriously tough to start a small business because of the relatively high state income taxes and real estate costs for those renting/buying commercial space," Jessica Mehta, owner of MehtaFor writing services, said. She added that the lack of a sales tax doesn't make up for those costs.

In addition, some taxes affect specific businesses. For example, entrepreneurs in the hospitality industry are bracing themselves for an increase in Oregon's lodging tax, which is set to jump to 1.8 percent later this year. Compared to many other states with a lodging tax, Oregon's remains relatively modest, but that's little consolation to those preparing to pay more as a result.

"Taxation is a bit of a mess from where I sit," Fintel said. "We've got the 1 percent state lodging tax, which is going up to 1.8 percent in July, partly to pay for the World Indoor Track & Field Championships in 2021."

That rate will be reduced from 1.8 percent to 1.5 percent in 2020.

In addition to a significant tax burden, small business owners in Oregon have to contend with a high cost of living. Real estate costs, in particular, are skyrocketing as more people move into the state and more businesses open. The result is higher overhead costs when one is buying both residential and commercial real estate.

"The Portland-area housing market is through the roof," Ray said. "It's one of the highest in the nation in terms of growth, so it can be difficult to relocate employees in a cost-effective manner."

"Real estate prices are going up all around Oregon, and especially around Portland," Dubnow said. "When it will be time to renew our lease, we know that we'll have to count on paying up to 15 percent more that we are now. That's a significant amount, and we'll have to take [it] into account and figure out how to deal with it in the next couple years."

In fact, from July 2014 through July 2015, Portland's home prices increased by 7.4 percent, according to a report in The Oregonian. Commercial real estate is booming as well; commercial real estate firm CBRE estimated that Portland's metro region absorbed 1.5 million square feet of commercial real estate through the first quarter of 2016 alone. That represented an increase over the previous year, and the trend is expected to continue as more startups look for operating space.

"[Real estate demand] is definitely increasing, particularly in Portland," Ben Hoskins, owner of You Move Me Portland, said. He added that affordable options for living can still be found inland, if you're willing to accept a longer commute.

Oregon has seen both its labor force and employment levels explode since 2013. The unemployment rate has fallen dramatically over that same time period and now stands at 4.5 percent, according to the U.S. Bureau of Labor Statistics. Oregon's entrepreneurs are hungry for employees, which is evidenced by the strong startup activity and the number of people relocating from other states. However, the demand is so high that even with the growth in the labor force, it can be difficult for small business owners to find the right people for their open positions.

"With so many new businesses opening up, there are thousands of jobs available at any given time," Nadeau said. He added that entrepreneurs are waiting to see how a planned incremental increase in the state's minimum wage over the next six years will affect conditions in the labor market.

If you're a small business owner in Oregon looking for resources to help you move forward, here are a few organizations you might want to learn more about.

Oregon SCORE

SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Oregon. 

Central Oregon

Willamette SCORE

Salem SCORE

Portland SCORE

Vancouver SCORE

Mid-Columbia Tri-Cities SCORE

U.S. Small Business Administration District Offices

The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.

U.S. SBA District Office

Oregon Small Business Development Centers

Oregon hosts a number of development centers for small business. Each is dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything from crafting business plans to navigate the state's tax code. You can find your region's small business development center at the link below.

Oregon SBDC Network

Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at auzialko@purch.com.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.