How to start a business in Michigan
Whether you’re realizing a lifelong dream of starting your own business or seizing an opportunity in the market, becoming a business owner can be exciting. If you’re considering starting your own business in Michigan, you’re not alone. In fact, there are over 900,000 small businesses in the state! In this guide, we’ll walk you through the most crucial steps to getting your Michigan business started.
What do you need to start a Michigan business?
To start a business in the state of Michigan, you’ll need to work with the state and local governments. After choosinga business name and plan, you’ll want to understand the regulations governing your business. This will help you feel more confident and prepared to navigate the process. You’ll need to ensure you apply for the proper licensing and permits–different business types will have different rules. You should also apply for the correct income tax and employer identification documents. Then, you may need to apply for a sales tax license and ensure you have all the correct licenses and permits.
This may seem like a lot, but don’t worry. We’ve created a step-by-step guide to make the process easier for you.
Let’s look at each of the following steps:
Step 1: Create your business
The first thing you need to do is come up with a business idea, and outline the goods or services you will provide. You’ll want to perform some market research to see what competitors are doing and ensure your business is viable.
You also getto choose your business name. Take care that your business name stands out from the crowd, but keep in mindthat your name should give customers a good idea of what kind of business you run. Take time to research business names – and search for your desired name within the Michigan Business Entity search records to ensure it’s available.
Should you want to reserve the business name prior to filing the necessary paperwork, you can do so by filing an Application for Reservation of Name and paying the filing fee, which depends on the business entity structure.
Step 2: Establish a business plan
It’s important to establish a well-thought-out business plan because it details many of the most important questions about your business. Potential lenders, investors, partners, and clients will review this information in order to determine your potential business success. So whether you’re looking for a Small Business Administration (SBA) or bank loan, or looking for co-founders, a sound business plan is necessary. Here is an outline of a typical business plan:
Executive summary
In the first section, you’ll introduce the company, including a mission and vision statement. This summary should describe your business idea, the goods and/or services you’ll sell, leadership, and relevant financials.
Company description
This second section provides a more detailed company description, including the problems or pain points your business solves. You’ll also include information about your customer base and if you’ll be a B2B or B2C business. Finally, this section should include your company’s advantages and strengths, and why you think these strengths will set your business apart.
Market analysis
In this section, you’ll present all of the prior research into the market in which your business will operate. This can include current market conditions, competitor analysis, and even primary and secondary customer markets. You’ll also want to detail how your business will be successful with these trends and outlooks in mind.
Business structure
This section should detail your proposed business structure. No matter which structure you choose, you’ll demonstrate why you chose this structure and also how your internal business structure will operate here.
Products or services
You should detail your product or service offerings with pricing here. This section should also detail the entire product or service lifecycle. In addition, make note of intellectual property that your business will rely on.
Marketing and sales
This section should describe how you will market your products or services. You’ll detail the entire process of the sale up through how you’ll collect payments. In this section, you should include projected sales numbers, as they’ll be critical to securing financing from outsiders.
Funding
Speaking of financing, this next section should detail what kind of funding you’re looking to obtain. Include funding requirements and a detailed description of how you’d use the financing you’re seeking.
Financial projections
Outline your financial projections in this section, including a description of how you got to these projections. You should illustrate how you’ll turn a profit and what your profit potential is.
Appendix
Finally, you should include all other relevant information in the appendix. Examples can include product descriptions, business permits and licensing, founder resumes, and industry-specific credentials.
Step 3: Choosing a business structure
While you’re working on your business plan, you should be considering your business structure. Choosing the right legal structure for your business is crucial, as it can affect how you run the business, the business’s tax responsibilities, personal liability, and funding access. Here are the most popular business entity structures in the state of Michigan.
Sole proprietorship
In a sole proprietorship, an individual person (a sole proprietor) runs and owns a business. Often, a sole proprietorship is just named after the individual. However, to form a sole proprietorship with a different name, you’ll need to file an Assumed Name Certificate with the clerk of the county in which you conduct business. For example, if your name is John Smith, but you want your sole proprietorship to be “John’s Jams,” you’ll have to declare that you’re doing business as (DBA) name is “John’s Jams.” You do not need to file any other formation documents for a sole proprietorship. The government taxes sole proprietorship business income through the proprietor’s personal tax return.
Limited partnership (LP)
A limited partnership exists when two or more people form a business together. For a limited partnership, there must be at least one general partner and at least one limited partner. The general partners are liable for all debts and obligations, while limited partners are limited by the amount that they contributed. To form a limited partnership within the state, you must file a Certificate of Limited Partnership with the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau. Limited partnerships are pass-through entities for tax purposes, meaning that each partner is liable for their share of the income on each partner’s personal tax return.
General partnership (GP)
A general partnership is two or more partners going into business together for profit. Personal liability for general partners is joint and individual. While you don’t need to register a general partnership at the state level, you do need to file a Certificate of Assumed Name within the county in which you conduct business. General partnerships are pass-through entities and taxed through each partner’s personal tax return.
Limited liability company (LLC)
An LLC offers some of the same advantages and liability protections to a corporate structure while fulfilling different tax obligations. Forming a Michigan LLC is a straightforward process: you’ll need to file Articles of Organization with the Michigan Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau. You may also need to file a Certificate of Assumed Name within the county of your LLC. You legally don’t need to file an operating agreement, but you may want to have one on file. Personal liability is limited for members. You’ll also need to designate a registered agent, which can be you, an employee, a lawyer, or a company that provides registered agent services.
Corporation
A corporation is a type of business that allows the owners to be separate from the business. While limiting personal liability can be a good idea, corporations typically have increased taxes for the corporation or its shareholders. Registering as a Michigan corporation requires filing the Articles of Incorporation with the Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau. There are also some other requirements to form a corporation – you’ll need to designate a registered agent, write bylaws for your corporation, appoint directors, and hold directors’ meetings. For more information about registering a corporation in Michigan, it’s best to consult with a professional within Michigan state.
Step 4: Funding your business
Funding is a critical part of starting a successful new business. Here are the ways you can fund your new venture.
No money
There are some business ideas that aren’t capital-intensive. You can start these businesses with very little money except for registration and filing fees.
Self-funding
Another option for funding your startup is to fund the business yourself. This approach comes with advantages and disadvantages. The biggest advantage is that you aren’t indebted to anyone else, so if you do well, you get to keep all the profits. However, a disadvantage to this type of funding is that a failed venture can hurt your personal wealth. Weigh the pros and cons before deciding to self-fund your business.
Loans
Many Michigan banks and credit unions offer small business loans. Before agreeing to loan your business money, these financiers will want to see your business plan. Therefore, it’s crucial to illustrate your company’s vision so lenders can better understand your venture.
Grants
Entrepreneurs can also take advantage of local and national grants. Typically, private organizations and government agencies fund grants. Unlike loans, you don’t have to pay back grant amounts.
Michigan offers access to capital through a few programs and partnerships. Visit the Michigan Economic Development Corporation website to learn more about funding resources for Michigan small businesses.
Step 5: Filing for tax and employer identification numbers
Depending on your business type, you’ll have specific tax liabilities. But no matter your business structure, you’ll need to pay federal, state, and local business taxes.
To pay these taxes, you’ll need to apply to the Internal Revenue Service (IRS) for a federal employer identification number (EIN). This number helps to uniquely identify your business entity for federal tax purposes – such as paying income and payroll taxes. An EIN can also be useful for opening a business bank account, applying for licensing and permits, and hiring and paying employees. Sole proprietors don’t need to obtain an EIN, as they can use the owner’s social security number instead of an EIN.
Michigan businesses have no general licensing requirements, but many industries require specific certifications, licenses, or permits. To check your business’s needs, utilize the Michigan State License Search.
If your business sells tangible personal property, you’ll need to register for a state sales tax license. Cities and other municipalities may have their own requirements, so you’ll want to research what those may be.
As always, talking to a local tax professional for more specific information about your business is a great choice.
Step 6: Getting a business bank account (and credit card)
After obtaining your EIN and state identifications, the next step is opening a business bank account. This can help ensure your business finances and personal assets are separate. In addition, a business bank account can make bookkeeping easier, help you run payroll and keep up with your bills. To open a business bank account, simply visit a local bank branch or online banking institution.
Business credit cards are also helpful for new businesses. You’ll keep your business spending separate while also getting a line of credit to get your business up and running.
Step 7: Obtaining licenses, permits and business insurance
As previously mentioned, there is no general business license in Michigan. However, many professions require specific licenses and permits. Therefore, find the necessary licenses you need with the State License Search. You’ll also need to contact your local county clerk and county office, as you may be subject to local licenses, permits, and zoning requirements.
While insurance is only required in certain circumstances, there are a few types of business insurance you should consider.
General liability insurance
This insurance type covers losses your business causes to another company, client, or vendor. No matter the size of your business, you should consider general liability insurance.
Worker’s compensation insurance
If you have more than one employee, you’ll need to get worker’s compensation insurance. This insurance type covers claims from work-related accidents and injuries.
Professional liability insurance
If you provide professional advice, consulting, or accounting services, you’ll want to consider personal liability. This type of insurance covers financial losses due to negligence and malpractice.
Frequently Asked Questions (FAQs)
How much does it cost to start a business in Michigan?
It can depend on your business, but the general cost of starting a business in Michigan is less than $100. Depending on your business type and industry, you may need to pay additional licensing fees.
How do I open a small business in Michigan?
Opening a small business in Michigan is a challenging process and requires a few steps:
Step 1: Create your business
Step 2: Establish a business plan
Step 3: Choose a business structure
Step 4: Fund your business
Step 5: File for tax and employer identification documents
Step 6: Get a business bank account
Step 7: Obtain licenses, permits, and business insurance
Do you need a license to own a business in Michigan?
No, there are no general business license requirements in Michigan. However, each industry may have unique requirements. Check the State License Search website to find out what you may need for your business.
What is the best way to start a business?
The best way to start a business will depend on your business type and goals.
How is starting a small business in Michigan different from starting a small business in your home state?
Starting a business in the state of Michigan is not unlike other states, but depending on the business type, the process may look different.
Ready to work with a company that knows what it’s like to start a business?
We are so excited for you as you work toward starting a business in Michigan! This is a big deal, and we hope you know we’re rooting for you.
To help set you up for success, we recommend keeping this article bookmarked and checking out Start-Up Path for Entrepreneurs, a tool designed to get you from idea to opening day with confidence.
You’ll get lots of resources — including interactive worksheets and planning guides — that you can work through on your own schedule and reference anytime as your business grows or shifts.
The best part? It’s completely free.
That’s not all. You can also tune in to our podcast, The Entrepreneur’s Studio, for empowering and inspiring stories and applicable advice. Hear from Shake Shack founder Danny Myer, accidental entrepreneur Mike Beckham who broke through a crowded market and all-inclusive makeup studio owner Alex Bradberry.
Ready to start your business in Michigan? Heartland is here, ready to assist you.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us