Ready to turn your business idea into reality in Michigan? Starting a business might seem a bit overwhelming, but it doesn’t have to be. We’ve put together a simple checklist to walk you through the key steps you need to follow. While starting a business can be challenging, this checklist is your first step toward making your dream a reality, with less hassle and more direction.

Steps To Start A Business In Michigan

Step 1: Choose a Business Idea

The first thing you need to do when starting a business in Michigan is to figure out what kind of business you want to run. You might already have a great idea, or you might still be thinking about it. Either way, we’ve got a collection of business ideas that can help with your research. This includes information about different industries, how much it might cost to get started, advice, and plenty more to get you going.

Step 2: Write a Business Plan

Once you’ve settled on your business idea, the next move is to write a business plan. The business plan is a tool that helps you navigate the steps of starting and building your business. It makes you dig deep into looking at who your competitors are, what they want, and how you will get your message to them.

Writing a business plan is also useful as you calculate the costs to start and work through the financial projections. Banks or investors will want to see the plan so they can see that you did your homework and the business has a good chance to grow and succeed.

Related: How to write a business plan

Step 3: Find the Money

With the startup costs calculated in the business plan, you will have a good idea of whether your personal funds are enough to launch. This makes the next step in starting a business, which can be a challenging one for many entrepreneurs, is getting the remaining funds. The common funding options available in Michigan include:

Friends and family: Friends and family that believe in you and your idea may loan or invest in your business. Be sure to write down repayment expectations, as misunderstandings about money can ruin relationships.
Bank loans: Traditional bank loans are a common funding source for small businesses. To qualify for a bank loan, you’ll typically need a strong credit history, business plan, collateral, and personal investment of at least 15%-25% of the total startup costs.
SBA loan guarantee: The U.S. Small Business Administration (SBA) offers loan guarantee programs to help small businesses receive financing. The SBA doesn’t provide loans directly to small businesses but guarantees a portion of the loan made by approved lenders, so the lender’s risk is lower. Some popular SBA loan programs include the 7(a) and the 504 Loan Program.
Microloan programs: Microloans are small loans for businesses with limited capital requirements or who cannot qualify for conventional lending. These loans are typically provided by nonprofit organizations, community development financial institutions (CDFIs), and specialized microlenders. Organizations such as the Michigan Women Forward, Northern Initiatives, and others in the state offer microloans to small businesses in Michigan.
Investors: Another funding option is to seek investment from angel investors or venture capitalists. Angel investors are typically high-net-worth individuals who invest in startups in exchange for equity or convertible debt. Venture capitalists are investment firms that provide funding to high-potential, high-growth companies. While these investors can provide substantial funding and valuable expertise, they often require a share of ownership and control in your business.

Step 4: Select a Business Structure

The next step in starting a new business in Michigan is selecting a business structure. Also called a business entity, a business structure is how a business is legally set up to operate. This isn’t a decision to make lightly, as it impacts a number of things like raising funds, taxes, personal asset protection, and more.

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.

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 desire protection from creditors or lawsuits.

Finally, Limited Liability Companies (LLCs) combine features from both corporations and sole proprietorships & partnerships. LLCs provide limited liability protection to members, like a corporation, while having fewer formalities than corporations, 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 5: Register the Business

With the business structure out of the way, we can turn our attention to registering the business. Depending on what the business does and where the business is located, a business 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 required through the Michigan Department of Treasury if the business will be selling goods or services that are taxable in the state.
Business name registration: A sole proprietor or partnership that 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.
Professional licensing: Some services, such as garbage haulers, dance studios, pet shops, and others, require licensing in Michigan.

Step 6: Open a Business Bank Account

Once the business is set up and registered, the next phase of starting your business will be to set up a business bank account. Separating your personal and business funds takes care of a number of potential 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), name registration, or filed entity formation paperwork. Additionally, you may need to provide personal identification for yourself and any other owners or signers on the account.

Step 7: Hire Employees

The next step is preparing to hire employees if you are planning to hire. As a new employer, there are a few important things to know to help navigate this stage, which includes understanding laws like the minimum wage, mandatory work breaks, and workers’ compensation regulations, in addition to registering with the Michigan Department of Treasury, the Michigan Unemployment Insurance Agency, and Internal Revenue Service.

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. This leads us to the next step, which is figuring out whether insurance is needed for your business. A few important types of business insurance include:

General liability insurance is one of the most common 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. Small business owners could be held liable for damages and legal fees resulting from accidents or negligence without this coverage.
Property insurance is a type of policy covering physical assets owned by the business, such as buildings, equipment, furniture, inventory, and computers. It also protects against losses due to fire, theft, vandalism, and other disasters that could cause significant financial loss without proper coverage.
Business interruption insurance is a policy that provides financial protection if a business has to temporarily close due to a covered event such as a natural disaster or power outage.
Worker’s compensation insurance is required under Michigan law for any business with 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.

Step 9: Set up an Accounting System

The next step in the startup process is setting up a system to track income and expenses. Small businesses in Michigan are subject to both state and federal tax laws, so it is important for small business owners to stay on top of these requirements.

By keeping accurate records throughout the year, small business owners can not only reduce potential penalties or fees associated with late filings or incorrect information, but a good system can also help small business owners better evaluate the business’s health.

This material is property of StartingYourBusiness.com

Common questions when starting a business in Michigan

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 Michigan Resident Agent
3. Filing the Articles of Organization

For more information on the process, check out our guide on 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.

Does a sole proprietor need a business license in Michigan?

In Michigan, whether a sole proprietor needs a business license depends on the type of business they’re running and where it’s located, not on the business structure they choose. There isn’t a business license required through the state, but many types of businesses do require specific licenses or permits to operate legally.

Local requirements vary by city and county, and there are also state-regulated industries that require licensing, such as food service, construction, and certain professional services. It’s important to check with your local city or county clerk’s office to find out what specific licenses or permits you might need based on your business activities.

Michigan Small Business Resources

There are 908,007 small businesses in Michigan, which is 99.6% of all businesses in the state,¹ and 47.3% of Michigan employees work for a small business.² Because of the economic impact of small businesses, there are a number of small business resources to help Michigan businesses start and grow. Some of these include:

Michigan Alliance of APEX Accelerators: Formerly known as Procurement Technical Assistance Centers or PTAC, this statewide program prepares businesses to secure state and federal government contracts.
Michigan Economic Development Corporation: This state agency provides small business assistance and resources to businesses in Michigan
Michigan Manufacturing Technology Centers: The MMTC offers a wide range of services aimed at enhancing the operational efficiency and market competitiveness of Michigan’s small- and medium-sized manufacturers.
Michigan Small Business Development Center: SBDCs provide support to small businesses by providing consulting services, tools, and training.