Starting a business in Michigan means understanding the challenges you'll face and the opportunities you can take advantage of. This guide explains the basics of doing business in Michigan.
Michigan's economy took a big hit after the 2008 financial crisis, with the damage centering on the automotive industry in Detroit, but entrepreneurs report that the state is coming back strong. The Great Lakes State boasts a low cost of living and manageable corporate income tax rates. While the real estate market is on the rise again, it remains affordable to secure both homes and commercial space. Where prospects once seemed dismal, small businesses are now optimistic for the future.
Reasons for starting a business in Michigan
Michigan's economy has shown strong signs of recovery since the Great Recession, and there are various reasons the state appeals to both entrepreneurs planning to start a business and the employees they need to hire.
1. Increased focus on small businesses
"After the Great Recession, there has been an increase in emerging small businesses [in Michigan]," said Todd Heyboer, owner of online boutique Closet Barcode. "There has been a great deal in improvement, as you can see in the falling unemployment rate and the rise in median incomes."
2. Economic growth
While Michigan's per capita personal income is just 89% of the national average, it has consistently ticked upward since 2012. In 2018, Michigan had the 17th largest economy in the United States, and the number of workers joining the labor force has been growing since 2015.
3. Available space
"There is still a big surplus of available office space and, thus, low rental prices," said Monte Falcoff, principal at the Harness Dickey law firm's Detroit office.
4. Strong industry
One of the most important sectors of Michigan's economy is manufacturing. About 16% of Michigan's economy comes from manufacturing industries, according to the Bureau of Economic Analysis. Michigan is home to many technically skilled workers, such as in engineering or chemistry.
"Michigan has a history of entrepreneurship and engineering, and a large concentration of engineering talent and manufacturing resources are present within a quick drive," Falcoff said, which makes it an appealing place for entrepreneurs in the manufacturing industry.
5. Cost of living
The affordable cost of living in Michigan is likely to appeal to the employees you need to attract. Entrepreneurs enjoy low real estate costs and moderate taxes. Sperling's Best Places cost-of-living index found Michigan to be significantly less expensive than the U.S. as a whole, particularly in housing costs. According to MIT's living wage calculator, a single adult without any dependents could meet all of their needs in Michigan on a wage of about $10 per hour.
How do you get a business license in Michigan?
If you're starting a business in Michigan, you may need to get one or more licenses or registrations. This is also true for independent contractors working in Michigan, who may need a license or permit depending on the type of work they do. Not every business needs a license, however.
In most cases, the licenses you need are issued by a state agency, depending on the type of business you are starting. For example, a dermatology business must be licensed by the Department of Licensing and Regulatory Affairs, while a movie theater will need multiple licenses from the Michigan Department of Treasury and the Department of Agriculture & Rural Development's Food and Dairy Division.
To find out if you need a business license in Michigan, visit the state license search page. The search feature allows you to look for the type of business you are starting, or you can browse an alphabetical list. Once you find your type of business, you can click through to the relevant state licensing agency.
Whether or not you need a license for your business, you will need to register with the state for tax purposes. You can register through the Michigan Department of Treasury. You will also need an Unemployment Insurance Agency account number if you plan to hire employees.
How do I start an LLC in Michigan?
Several types of business entities, including limited liability corporations (LLCs), must register with the Corporations Division of the Michigan Department of Licensing and Regulatory Affairs.
To protect your LLC from personal liability, you'll need to report the name and address of your registered office and resident agent to the agency annually. If you have a partnership and want to limit the liability between partners, you can register as a limited liability partnership (LLP) from year to year.
How do you register a business name in Michigan?
If you won't be operating as a sole proprietor using your own name, you will need to register a business name with the state of Michigan. This business name is sometimes known as a fictitious name, trade name, assumed name or DBA ("doing business as").
You will first need to register your business with the county clerk for where it will be operating. Most business entities – including LLCs, LLPs and corporations – also need to file a form with the Michigan Department of Licensing and Regulatory Affairs to do business under an assumed name.
Every business in Michigan must have a unique name. You will need to do a business entity search before registering your assumed name with the state to ensure that your business name is not already in use.
How much does it cost to start a business in Michigan?
The cost of starting a small business in Michigan depends on the type of business you start. These are the general filing fees for licensing and permitting a new business in Michigan:
- Filing a city or county certificate for an assumed business name: $10 and up
- Filing an assumed business name with the state: $25
- Filing Michigan articles of incorporation: $50 to $100
- Expedited processing for articles of incorporation: $50 to $1,000
- Business licenses: $7 to $3,000 annually (average around $150)
Other costs that vary by business include equipment, supplies and inventory; a website domain and hosting; rent for a retail or office space; a business bank account, and any other costs that your business requires to be functional.
These costs range from a few hundred dollars to tens of thousands. You may also need to pay fees for federal paperwork or licenses, such as filing for an Employer Identification Number for federal taxes.
Before you begin the process of registering your business, create a business plan to get a full picture of the startup costs involved.
Business taxes in Michigan
"Our government instituted a flat 6% corporate tax, among the country's lowest, and that's helped Michigan become a great place to open a new business or expand a current one," said B.J. Lennon, director of business operations for recruiting and staffing company Aerotek.
This tax rate, known as the Corporate Income Tax (CIT), passed in 2013. For most businesses, it replaces the Michigan Business Tax (MBT). Business that qualify for the small business alternative credit under the CIT pay a tax rate of 1.8% rather than 6%.
If your business doesn't qualify for the CIT, you will likely need to pay the MBT, which imposes a business income tax of 4.95% and a modified gross receipts tax at a rate of 0.8%. Michigan also levies a 6% sales tax and a 4.25% flat personal income tax rate. The Michigan Department of Treasury provides more information about the state's business taxes.
Some business sales are taxed in Michigan, while others are not. Either way, it is smart to obtain a sales tax license through the Department of Treasury. In some cases, this license will also allow you to make purchases for resale without paying taxes to the original vendor.
How do I start a business in Michigan with no money?
Accessing capital for startups or expansions is a little more difficult in Michigan than on the coasts. Some small business owners have found that access is improving as the economy grows, though.
Heyboer noted that rapidly growing startups encounter many pain points, since access to venture capital is not as great in Michigan as it is in some other parts of the country. Young companies should prepare for a difficult time finding investors and plan accordingly.
Since venture capital is not widely accessible in Michigan, many entrepreneurs turn to local federal credit unions, such as the Michigan State University Federal Credit Union. The federal Small Business Administration also provides loans, financing options and grants for small businesses and startups.
There are also various nontraditional financing options available to entrepreneurs who lack the cash flow to start a business, many of them thanks to the internet. These include peer-to-peer lending and community development finance institutions.
Resources for small business owners in Michigan
If you're a small business owner in Michigan looking for resources to help you move forward, there are many organizations and government agencies that can answer your questions and connect you with the resources you need to get up and running.
Michigan 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. Chapters in Michigan include Traverse City, Tip of the Mitt, Muskegon and Grand Rapids.
SBA district offices: The U.S. Small Business Administration has a Michigan district office where small business owners can access 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 assistance in the wake of natural disasters.
Michigan Small Business Development Centers: Michigan hosts a number of development centers for small business. Each center in the Michigan SBDC network is dedicated to supporting the development and retention of Michigan small businesses, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code.
- Michigan Economic Development Corporation: The MEDC answers many questions about starting and running a small business in Michigan. It can also connect business owners and entrepreneurs to a variety of resources, from links about regulations and permits to real estate databases that can be used to find property for new businesses in the state.
Adam Uzialko contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.