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Michigan has historically been a major business hub in the United States. Ford, General Motors, and Motown Records all call the Great Lakes State home. The spirit that birthed these iconic businesses is still very much alive in Michigan. This guide will walk you through the steps of starting a business in the state.
1. Choose a business idea
Choosing a viable business idea is no small feat—and it’s the first thing you’ll need to do before proceeding with any other part of the business-building process in Michigan. You’ll have to decide what you’re going to sell: A product? A service? Both? But that’s only the very beginning. There are a number of considerations that come into play when devising an idea for your Michigan business. Some key questions to consider are:
- Who is your customer? Scalable business ideas are all about knowing your target customer. To figure this out, you might conduct a competitive analysis of other businesses in your market, analyze marketplaces where similar products or services are sold (like Amazon or Wayfair), survey prospective customers, or research industry trends.
- What is your projected profitability? Unless it’s being funded by deep-pocketed investors, a business needs to turn a profit to survive. There are many considerations when it comes to determining the potential profitability of your Michigan business idea. These include pricing and assessing your customers’ appetite for the products or services you’d be offering. Also, deciding if you’ll bundle your products or services, whether the business will be direct-to-consumer or business-to-business, and whether a subscription model will work. And lastly, what is your break-even point? How many products or services must you sell, at minimum, to cover costs?
2. Name your business
Once deciding on a business idea, it’s time to select a name for your new Michigan company. This is one of the most important decisions you’ll make as an entrepreneur—as a good name effectively communicates the purpose and mission of a business. Considerations when choosing a business name include:
- Is your business name unique? Michigan requires that the business name be unique to the state. The Department of Licensing and Regulatory Affairs is a helpful resource to check availability.
- Is the domain name available? The uniqueness of the business name comes into play when it’s time to register a domain name for your website, too. You’ll need to check whether a domain name is available that adequately aligns with your business name. Ideally, it would be [YourBusinessName].com, but abbreviations or other top-level domains (for example, .net) might work. If nothing is available that clearly communicates your business identity, you may want to reconsider the name.
- Does it follow the naming rules? You’ll have to abide by certain naming rules specific to Michigan, which depend on the type of business you’ve formed. Limited liability companies (LLC) must include the phrase “limited liability company” or its abbreviation (LLC or L.L.C.). Corporations, also known as C corporations, must contain the word “corporation,” “company,” “incorporated,” or limited,” or a related abbreviation. Sole proprietorships must operate under the surname of the owner. To use an alternative name, the sole proprietorship must file for a DBA (“doing business as”). And partnerships must contain the surnames of the partners in the name. The same DBA rules that apply to sole proprietorships apply to partnerships.
Using a DBA in Michigan
To set up a DBA in Michigan, you’re required to file a Certificate of Persons Conducting Business Under Assumed Name with your county clerk’s office. Filing fees are usually low, between $10 and $20. To ensure your DBA is unique from any other business name in the state—this applies to the original name of your business, too—you can run a search of existing Michigan business names through the Department of Licensing and Regulatory Affairs website.
3. Create a business plan
A solid business plan is a vital part of successfully starting a business in any state, including Michigan. A workable plan will include the following:
- Executive summary
- Detailed company description
- Market analysis
- Outline of your business entity’s organizational and managerial structure
- List of products or services
- Customer segmentation report
- Marketing plan
- Logistics and operations plan
- Financial plan
Using available resources like a free business plan template can help with structure and can be tailored to fit your venture’s needs.
4. Choose a business structure and get started
Before you formally register your business in Michigan, you’ll want to choose between four business structures: sole proprietorships, LLCs, corporations, and partnerships. They mainly differ in how they are taxed.
- Sole proprietorships are owned and run by a single individual. General partnerships are formed by two or more owners. With sole proprietorships and partnerships, there is generally no legal distinction between the owners and the company itself and they are taxed one time, at the owners’ personal income tax levels. Because of this, these entities are considered “pass-through” entities in the eyes of the law, as profits pass through to owners, at which point they are taxed.
- Corporations are entirely separate entities, legally, from ownership. This protects an owner’s personal assets in the event the company fails, or is subject to a lawsuit. However, corporations are subject to corporate taxation—meaning profits are taxed as they are generated by the corporation, and again at the personal-income levels of owners and/or shareholders.
- LLCs meld some of the benefits of partnerships with those of corporations. While they are similar to partnerships in structure (being made up of one or more owners, or “members”), they enjoy the liability protection typically applied to corporations. LLCs may elect to be taxed either as partnerships (one time at the personal-income level) or as corporations (and taxed twice, once at the corporate level and again at the personal income level).
While an LLC in Michigan has flexibility in tax treatment, corporations are required to file a corporate income tax return with the state. Sole proprietorships and partnerships have to pay self-employment taxes (15.3% in Michigan).
Get a federal employer identification number (EIN)
After deciding what type of business to start in Michigan, you’ll have to apply for a federal employer identification number (EIN). You can do this through the Internal Revenue Service (IRS) website. An EIN is a nine-digit number assigned to businesses by the IRS for tax purposes. It’s similar to a person's Social Security number. Michigan state tax authorities will identify your business by its EIN. Having one not only makes it easier to file taxes at the federal and state levels, but it also helps with securing lines of credit and business credit cards.
Incorporating in Michigan
To formally launch your business, you’ll have to make certain disclosures to state authorities. The following are important steps you’ll take on your entrepreneurial journey in the State of Michigan:
- Choose a business name, abiding by any rules specific to the structure you’ve chosen.
- File your articles of organization either online or by mail. Your articles must include basic information like the business name, and name and street address of a registered agent for service of process, meaning someone who is designated to receive legal documents on your behalf. You may have to pay a filing fee of up to $50, depending on what kind of business you’re forming in Michigan (an LLC, for example).
- Open a business bank account.
5. Obtain business licenses and permits
Your Michigan business must acquire the necessary business licenses to run lawfully in the state. This will depend on the industry in which you’re operating. The state runs a database of licenses you can search prior to applying.
6. Examine insurance options in Michigan
Unforeseen losses can take a serious toll on a new business. If the loss is severe enough, it could wipe out your fledgling business. While some business structures like corporations and LLCs offer a degree of personal asset protection, you may still want to purchase insurance to cover your business’ products, vehicles, and other unshielded assets. Types of insurance that may be needed include:
- Workers’ compensation insurance. If you intend to hire employees in Michigan, you will be required to purchase workers’ compensation insurance, which offers wage replacement and medical benefits for workers injured on the job, and consequently, unable to work for a period of time.
- General liability insurance. This provides coverage against financial losses that result from property damage, injury on the job, and defending or pursuing lawsuits, to name a few.
- Product liability insurance. With this insurance, coverage is provided against financial losses that result from legal proceedings relating to the sale of a defective product causing injury to a customer.
- Professional liability insurance. This covers financial losses resulting from malpractice suits (generally for businesses in specialized fields like law, accounting, or medicine).
- Business owners insurance. An insurance package bundles coverage options typical for small business owners.
The federal Small Business Administration maintains a list of forms of insurance your new Michigan business may need.
7. Understand financial considerations
In addition to purchasing insurance, you will likely also have to make other financial investments to get your Michigan business off the ground. This could include rent toward a brick-and-mortar retail space, a professionally designed website, ad placements, equipment, or software. You may also want to hire one or more lawyers, accountants, or other professionals. These costs can quickly add up. Luckily, there are accessible, fast resources to help you obtain startup funding.
8. Market your business
A solid marketing plan for your Michigan small business will include several key elements:
- Market research. Thorough market research is the key to better understanding your company’s target customer.
- Advertising and promotion. Get the word out about your product or service through paid advertising. You can do this yourself or hire an agency to do it on your behalf.
- Social media. Most successful businesses, regardless of location, have a robust social media presence on multiple platforms—Facebook, Instagram, and YouTube, among others. Those in Michigan are no exception. Publish social media campaigns that align with your brand to help reap the rewards of increased customer engagement.
- Public relations. Identify and cultivate relationships with media outlets—both in Michigan and nationally—that can help increase your visibility, organically.
- New business and customer retention. Build genuine relationships with customers that keeps them coming back—and spreading the word to friends, family, and colleagues.
Final thoughts
Following these steps can help lay a solid groundwork for building your business in Michigan. But before setting up shop in the state, you’ll want to give careful thought to whether your business goals align with the regional customer appetite and vendor capacity. Research Michigan’s demographics, business laws, and infrastructure to ensure your venture can fit seamlessly into its ecosystem— and reach its full potential.
