Whether you want to start a new business or grow your current company, doing business in Michigan is an excellent option. The state brings several opportunities to entrepreneurs and small business owners in industries that include outdoor recreation as well as indoor relaxation. We’ll share the information you need to get up and running if you want to start a business in Michigan.
Several studies rank Michigan low among the best states for small businesses, but its emerging small business focus and several promising industries make the state an ideal home for the right ventures.
Michigan’s economy has shown vital signs of recovery since the Great Recession. Additionally, the state has appealing characteristics for entrepreneurs as well as potential employees with the skills employers want.
Despite a downturn due to the recession, Michigan has a renewed small business focus that makes the state inviting for new ventures. “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.”
While Michigan’s per capita personal income is just 83.9 percent of the national average, it has consistently ticked upward since 2009. In 2022, Michigan had the 14th largest economy in the United States. Before employment rates dipped due to the COVID-19 pandemic in 2020, Michigan’s labor force had been steadily growing since 2011.
Michigan has plenty of space for new businesses to put down roots. “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.
For example, in Detroit, about 2 million square feet of new office space is under construction. Leasing opportunities are also expected to increase across the state as companies rebound from pandemic-related financial effects.
Manufacturing is one of the most vital sectors of Michigan’s economy. About 20 percent of Michigan’s jobs come from manufacturing industries, according to a report by Michigan State University. Additionally, Michigan is home to many workers skilled in engineering or chemistry, and there’s plenty of room for manufacturing facilities.
“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, making the state an attractive place for entrepreneurs in the manufacturing industry.
Michigan’s affordable cost of living will likely appeal to the employees businesses want to attract. Additionally, entrepreneurs enjoy low real estate costs and moderate taxes. Michigan’s cost of living is about 10 percent lower than that of the U.S. as a whole, and its housing costs are particularly attractive. According to MIT’s living wage calculator, a single adult without any dependents could meet all their needs in Michigan on a wage of $16.27 per hour.
Michigan has state-mandated sick leave laws requiring employers to offer paid sick leave to eligible employees.
If you’re starting a business in Michigan, you may need to get one or more business licenses or registrations. This is also true for independent contractors working in Michigan, who may need a license or permit depending on their work. 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 start. 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 learn whether or not you need a business license in Michigan, visit the state license search page. You can search by business type or browse an alphabetical list. Once you find your business, you can click through to the relevant state licensing agency.
Whether or not you need a license for your business, you must 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 start the hiring process and bring on employees.
Several types of business legal structures, 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 must 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.
If you won’t be operating as a sole proprietor using your own name, you must 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 must first register your business with the county clerk in the area it will operate. Most business entities — including LLCs, LLPs and corporations — must also file a form with the Michigan Department of Licensing and Regulatory Affairs to conduct 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 your business name is not already in use.
The cost of starting a small business in Michigan depends on the business type. Below are the general filing fees for licensing and permitting a new business in Michigan.
Other costs that vary by business type include the following:
These costs range from a few hundred dollars to tens of thousands. You may also need to pay fees for federal paperwork or licenses. For example, you might hire a company to file for an Employer Identification Number for federal taxes.
Before you begin the process of registering your business, create a business plan to get a complete picture of the startup costs involved.
“Our government instituted a flat 6 percent 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, senior director of strategic sales for recruiting and staffing company Aerotek.
This tax rate, known as the Corporate Income Tax (CIT), went into effect in 2012. For most businesses, it replaces the Michigan Business Tax (MBT). Businesses that qualify for the small business alternative credit under the CIT pay a tax rate of 1.8 percent instead of 6 percent.
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 percent and a modified gross receipts tax at a rate of 0.8 percent. Michigan also levies a 6 percent sales tax and a 4.25 percent 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’s 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.
Accessing capital for startups or expansions is a little more challenging in Michigan than it is on the coasts. However, some small business owners have found that access is improving as the economy grows.
Heyboer noted that rapidly growing startups encounter many pain points because access to venture capital is not as great in Michigan as in other parts of the country. Young companies should prepare for a challenging 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 (SBA) also provides loans, financing and business grants for small businesses and startups.
Various nontraditional small business financing options are also available to entrepreneurs who lack the cash flow to start a business. These include peer-to-peer lending and community development finance institutions. Many nontraditional options rank among our picks for the best business loans.
If you want to start a business but aren’t sure which industry to choose, here are some of the most favorable Michigan industries.
If you’re a small business owner in Michigan looking for resources to help you move forward, many organizations and government agencies can help. Below are some services that can answer your questions and connect you with the resources you need to get up and running.
You now have the steps you need to get your great business idea moving in the right direction. With expert advice and resources, you can start your business equipped with everything you need. A successful launch — and growth — in Michigan may be right around the corner.
Shayna Waltower and Adam Uzialko contributed to this article. Some source interviews were conducted for a previous version of this article.