How To Start A Business in Michigan
Nestled in the heart of the Great Lakes region, Michigan has emerged as a premier destination for entrepreneurs seeking to launch and grow their businesses. With its diverse economy, top-tier workforce, and strategic location, the state has cultivated a robust business environment that fosters innovation and success.
This encouraging economic landscape and the state’s business-friendly climate and streamlined regulations provide an ideal foundation for aspiring entrepreneurs to thrive.
Michigan Small Business Stats
- There are 911,914 small businesses in Michigan, which is 99.6% of all businesses in the state. (2022 SBA Small Business Profile)
- Exports by small Michigan firms reached $9.8 billion. (2022 SBA Small Business Profile)
- Small businesses in Michigan employ 1.9 million employees, which is 47.9 percent of the total employees in the state. (Statistics of US Businesses)
- Michigan was ranked as the 16th best state for business by CNBC, with the cost of doing business, access to capital, and cost of living being the highest-ranking factors.
- Despite WalletHub scoring Michigan as the 21st best state to start a business, it was ranked as the 6th best for business costs.
Steps To Start A Business In Michigan
Embarking on the exciting journey of starting a small business in Michigan is made simple and stress-free (well, maybe not completely stress-free) with our checklist designed to guide entrepreneurs through the most common and crucial steps of establishing their business.
Step 1: Choose a Business Idea
Starting a business in Michigan can be an exciting and rewarding experience. However, it is important to choose the right business idea that has the highest probability of success. When selecting a business idea, it is important to consider factors such as market demand, competition, geographical location, regulatory environment, workforce availability, and potential customers.
Popular business ideas in Michigan include aftermarket auto parts businesses, farm set-ups, mobile bartending services, campgrounds, AirBnBs, clothing boutiques, and drive-in movie theaters. Additionally, small businesses such as specialty foods & grocery stores, herb farming, art galleries, and cake decorating are also popular in Michigan.
It is important to conduct research and market analysis to evaluate the feasibility of your business idea. This involves validating market assumptions by researching customer needs and preferences, assessing competition by understanding their strengths and weaknesses and testing your product or service idea in Michigan’s local market.
The first step in starting a business in Michigan is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. Regardless, you can check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.
Step 2: Write a Business Plan
Creating a comprehensive business plan is essential for any entrepreneur looking to start a business. A solid business plan should include detailed information about the product or service being offered, the target market, and the operational and financial considerations necessary to launch and sustain the business.
The business plan is not only important in getting financing, the business plan also forces the entrepreneur to research potential competitors, understand customer needs, and analyze industry trends. This research will provide valuable insights into the business’s viability and help entrepreneurs identify growth opportunities.
Related: How to write a business plan
Step 3: Select a Business Entity
The next step in starting a new business in Michigan is selecting a business entity. Also called a business structure, a business entity is a legal structure that defines how a business operates and is taxed and is a very important step in starting a business. In Michigan, there are four common types of business entities: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
A sole proprietorship is an unincorporated business owned by one individual. This type of entity offers simplicity in starting and running but does not provide any personal liability protection for its owner. The profits of a sole proprietorship are taxed directly on the owner’s personal income tax return.
This type of entity requires little to no paperwork, with the exception of registering a business name if the business will operate under a trade name or fictitious business name. If so you will need to file a “Certificate of Persons Conducting Business Under Assumed Name,” (commonly referred to as a DBA, with the County Clerk’s Office where the business will be located. The business name must not be similar to other business names in the county.
Sole proprietorships are typically best suited for small businesses with low-risk levels, such as freelance work or consulting services.
General partnerships involve two or more individuals who share ownership and management responsibilities for a business. Each partner has unlimited personal liability for debts incurred by the partnership, which can be a major disadvantage compared to other forms of entities. Profits from general partnerships are reported on each partner’s individual tax returns, and no special filing requirements exist at the state level, but one will need to register a name, like the sole proprietor.
Corporations are separate legal entities from their owners which provide limited liability protection to shareholders but also require more paperwork than the first two entities. Corporations tend to be best suited for larger companies with multiple investors who need additional protection from creditors or lawsuits.
Related: How to form a Corporation in Michigan
Finally, Limited Liability Companies (LLCs) combine features from both corporations and sole proprietorships & partnerships while providing limited liability protection to members. LLCs also have fewer formalities than corporations when it comes to record-keeping, such as having annual meetings, taking minutes, etc.
Related: How to form an LLC in Michigan
Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular formation services include:
IncFile - Great service and free registered agent the first year.
Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!
ZenBusiness - Easy to use and free registered agent for 1 year!
Step 4: Register the Business
Starting a business in Michigan can be an exciting and rewarding experience, but it is important to understand the various licenses and registrations required for different types of businesses. Depending on the industry and where the business is located, a businesses may need to register for a variety of things, such as:
Business Licenses: The state of Michigan doesn’t have a general business license; however, many cities require a business license to operate.
Employer Identification Number: The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S and is used for paying payroll taxes, filing tax returns, and more.
Sales Tax License: Sales tax registration is also required through the Michigan Department of Treasury if the business will be selling goods or services that are taxable in Michigan.
Professional Licensing: Some services such as garbage haulers, dance studios, pet shops, and others, require licensing in Michigan. While this isn’t a license on the business, licensing is required in order to operate.
Related: What business licenses and permits are needed in Michigan?
Step 5: Open a Business Bank Account
As a business owner, it is essential to separate your personal and business funds. Mixing the two can lead to a number of complications, such as difficulty tracking income and expenses and defending against audits.
Opening a business bank account in Michigan requires certain documentation and identification. You will need to provide proof of your business’s existence, such as an Employer Identification Number (EIN) or filed entity formation paperwork. Additionally, you may need to provide personal identification for yourself and any other owners or signers on the account.
When selecting a business bank account in Michigan, there are several types available with different features and benefits. Basic business checking accounts typically have no minimum balance requirements and low fees. Interest-bearing accounts offer higher interest rates but may require higher minimum balances or monthly fees.
Step 6: Find Financing
As a small business in Michigan, you have several options when it comes to funding. Conventional bank loans are the most common form of financing for small businesses. Banks typically require personal investment, a good credit score, and other qualifications to secure funding for new businesses.
Additionally, the Small Business Administration (SBA) offers loan guarantees and microloan programs that can be beneficial for small businesses. These programs provide more flexible terms than traditional bank loans and can help entrepreneurs who lack access to capital or have limited credit histories. Investors can also be a great, but difficult to access source of funding for small businesses. Investors generally look for companies with high growth potential and are willing to take on more risk than banks or other lenders.
When applying for any type of funding, it is important to prepare all necessary documents beforehand, such as financial statements, business plans, personal tax returns, etc.
Related: Understanding the different types of business funding
Step 7: Hire Employees
There are a few important things to know to help you navigate hiring an employee in Michigan. This includes understanding the minimum wage, mandatory work breaks, and workers’ compensation regulations outlined by the Michigan Department of Labor and Economic Opportunity.
Michigan law requires employers to carry workers’ compensation insurance for all employees, including part-time and family members. Without workers’ compensation insurance, employers may be held liable for medical bills and other costs associated with employee injuries or illnesses that occur at work.
Employers are also responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.
Step 8: Obtain Business Insurance
Insurance is an important tool for small business owners to protect their businesses from the unexpected and ensure their long-term success. A few types of important insurance includes:
General liability insurance is one of the most important types of insurance for small businesses in Michigan. This type of policy protects against claims of bodily injury, property damage, and personal injury caused by the business or its employees. It also covers legal costs associated with defending these claims. Without this coverage, small business owners could be held liable for damages and legal fees resulting from accidents or negligence on the job.
Property insurance is also necessary for many small businesses. This type of policy covers physical assets owned by the business, such as buildings, equipment, furniture, inventory, and computers. It also provides protection against losses due to fire, theft, vandalism, and other disasters that could cause significant financial loss without proper coverage.
Business interruption insurance is another important type of coverage for small businesses in Michigan. This policy provides financial protection if a business has to temporarily close due to a covered event such as a natural disaster or power outage. Without this coverage, a business may not be able to recover financially after an unexpected event causes it to close down temporarily or permanently.
Step 9: Set up an Accounting System
Small businesses in Michigan are subject to both state and federal tax laws. It is important for small business owners to understand these laws and implement a robust accounting system in order to ensure compliance with all applicable regulations.
By keeping accurate records throughout the year, small business owners can not only easily prepare their taxes and reduce potential penalties or fees associated with late filings or incorrect information, a comprehensive accounting system can help small business owners save time and money by providing accurate financial records, tracking expenses, and preparing financial statements to evaluate the health of the business.
Related: Setting up accounting for a business
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Common questions when starting a business in Michigan
Is Michigan a good state to start a business?
Michigan has long been known as an attractive state for businesses, offering a pro-business environment and support for expansion and growth. With its diverse and abundant workforce, business-friendly environment, low cost of living, global supply chain assets, and overall tax burden, Michigan offers entrepreneurs a great opportunity to start their own business.
The Detroit region, in particular, offers companies of all sizes and industries one of the best business climates in the nation. It is home several Fortune 500 companies and is a hub for automotive manufacturing and technology.
In addition to its strong manufacturing base, Michigan also boasts a thriving entrepreneurial ecosystem with resources such as incubators and accelerators that provide mentorship and funding opportunities to startups. For example, Grand Rapids has become a hub for innovative startups due to its strong business climate and high quality of life.
What are the steps to starting an LLC in Michigan?
There are three main steps to starting an LLC in Michigan. These include:
1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Articles of Organization
There are a few more details to learn about, so be sure to check out how to start an LLC in Michigan.
How much does it cost to start an LLC in Michigan?
The cost to start an LLC in Michigan is $50 to file the Articles of Organization with the Michigan Department of Licensing and Regulatory Affairs.
What licenses do I need to start a business in Michigan?
There isn’t a general business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.
Related: What business licenses and permits are needed in Michigan?