How to start a business in Michigan in 8 steps
One of the hardest parts about starting a business is actually getting started. Many entrepreneurs have several business ideas, but the process of getting from ideation to running the company can be time-consuming and overwhelming if you haven’t had experience with it in the past.
To help your business have the best possible start, Huckleberry has compiled together a list of the 8 most essential steps to follow when starting a business in Michigan. Topics such as legal structure, business resources, licenses, permits, and marketing are all discussed throughout the guide.
1) Think about the type of business you want to start
Almost every entrepreneur has several business ideas in mind when they start to seriously consider opening a company. While it’s great to fantasize about scaling the company, it can be difficult to hit these goals if you don’t do the proper research before starting the business.
For instance, small business owners tend to focus too much on the profits a business can make and not on whether they enjoy the actual work. Selecting a type of business that aligns with your passion or an area that you find engaging will make it much easier to invest the needed time and energy into making the company successful.
Likewise, you also don’t want to create a startup that has an abundance of competition. This is also another reason why research is crucial, especially when it comes to picking your business.
You wouldn’t want to open up a new hotel in a city where there are already 10 hotels within 10 miles of each other. Instead, you could look into starting the business in a new location with less competition or develop a new type of business to start.
In addition to competition and selecting a company that you enjoy, you will also need to research the following areas:
- Customer demand
- Initial startup costs
- Opportunities to scale
- Overall time commitment
It’s entirely possible that after you have a chance to consider all the factors that go into choosing a business entity, you might start to question if entrepreneurship is right for you. If this ends up being the case, consider asking yourself the following questions.
After all of the research is completed and you have asked yourself the necessary questions, if you still want to open a business, you must continue through to the following 7 steps.
2) Set up your legal structure
After taking the first step of nailing down the type of business you want to start, the next thing to do is determine the appropriate business structure. Since every small business is unique, you should take some time to consider how you want your company organized. Thinking through some of the questions below can help:
- Do you currently have employees or plan to hire in the future?
- How comfortable are you with liability risk?
- Are you okay with leaving your personal assets open to debtors?
- Is it important to you to have shareholders and a board of directors?
- Will you be the only owner, or will others be running the company?
You will want to make sure that you know the answers to all of these items before picking a legal structure for your new business.
To further help you determine how best to organize your Michigan business, we have outlined some of the critical points of each structure below.
New and experienced entrepreneurs can benefit from a sole proprietorship. Not only is the structure one of the easiest to set up, but the process is also fairly quick, thanks to a minimal amount of paperwork. This is often the best choice for business owners who don’t have employees and want a business structure with tax flexibility.
Unfortunately, there are certain disadvantages to be aware of if you decide to go with a sole proprietorship. For instance, should your business have a lawsuit brought against it, you could be held personally liable.
Likewise, any debts that your business can’t pay would fall onto you as the business owner to pay. If you couldn’t cover the payments, then your personal assets could be in danger.
Limited Liability Company (LLC)
Throughout the State of Michigan, the LLC structure is one of the most popular business entity options among small businesses. It’s easy to set up with minimal paperwork allowing owners to quickly move on to other parts of the process like creating a marketing plan.
Your LLC company also offers an extra layer of liability protection that isn’t included with sole proprietorships. In fact, if your company can’t pay its debts, debtors only have access to business assets, not your personal assets.
The other big benefit of going with a Michigan LLC business is the flexibility it provides. For example, with an LLC, you have the ability to:
- Use a business name that doesn’t include your personal name
- Create an organization without a board of directors
- Adhere to less stringent reporting requirements than corporations
Some businesses have more than one owner or individual running the company. If this is the case with your organization, going with a general partnership may make sense.
With this type of legal structure, both responsibilities and company rights are split evenly among partners. While this is generally an excellent way to establish a company between multiple owners, it can be risky. Partners can be held personally liable if the business is unable to pay its debts.
Limited partnerships are another great option for businesses with multiple owners. Unlike general partnerships, limited partners don’t split business responsibilities and rights evenly.
Instead, there are typically two types of partners — general partners and limited partners. The general partners take on the risk and run the business, while limited partners cannot make management decisions.
Michigan business owners who decide to open a corporation have two main options: an S corporation or a C corporation. Both Michigan corporations provide several benefits to owners such as:
- Personal asset protection from business debts
- Ability to have shareholders or a board of directors
- Structured operating process and reporting
If you plan to help further a specific cause, then it might make more sense to start a nonprofit organization over other business entities. These structures offer tax benefits and are usually funded by donations instead of investments.
No matter which legal structure you ultimately decide to proceed with, it’s important that you complete the setup process. Depending on which entity you choose, you made need to complete one of the following:
- Pay all filing fees
- Complete the articles of organization
- File an operating agreement
- Finalize your articles of incorporation
3) Name and register your business
One area of the business creation process that you should give considerable time and energy to is selecting your company’s name. Not only does the business name represent the type of products and services your company will offer, but it will also help tell the story of your organization.
Depending on the type of legal structure you use for your business, there may be specific requirements for the actual name you use. For example, sole proprietorships require that a person use their personal name unless they register for a DBA, also referred to as “Doing Business As.”
Other structures such as LLCs and Corporations also have certain requirements that you will want to make sure you follow.
Once you have chosen your business name, the final step in the naming process is registering it with the Michigan Department of Licensing and Regulatory Affairs. From there, you can look into completing other parts of the business setup process, such as:
- Creating an Employer Identification Number (EIN)
- Appointing a registered agent that can accept tax and legal documents on behalf of your business.
4) Apply for licenses and permits
For Michigan companies, there are no general business license requirements to operate in the state. Instead, there are industry-specific licensing requirements based on the products or services your organization provides.
Since the type of license and permits you’re required to have will depend on the type of business you want to run, you must do the proper research. One place with a wealth of information is the Small Business Administration (SBA), located in Detroit. Another option for finding your license requirements is through the State License Search Website.
5) Choose a location
Now that you have chosen the type of business you want to operate, given it a name, and have the appropriate licenses, it’s time to think about where you would like to plant your roots. Location can play a significant role in the success of your company. Choose an area with little foot traffic, and you might find it hard to get customers into your retail store.
If you’re launching an eCommerce business, you don’t have to worry about location, but you will need to focus on other areas, such as having an easy-to-remember domain name.
Regardless of whether you’re operating online, through a storefront, or both, you will want to make sure you think through the advantages and disadvantages of different locations. Often your business plan will help dictate what location makes the most sense.
6) Open a bank account and prepare for future taxes
One area that most new entrepreneurs struggle with is keeping personal, and business accounts separate. Instead of opening up a business bank account, they pay for expenses and deposit revenue directly into their personal checking account. This can make accounting incredibly hard to track over a year, even with the help of accounting software.
In addition to the improved accounting, having a business bank account can open up other options, such as acquiring a business credit card. In turn, this will help build credit and go a long way in securing business funding or a business loan if needed.
Along with setting up your banking, you will also want to begin to think about taxes. Unless you want to use your social security number, you must acquire a federal employer identification number for your business taxes as a sole proprietor. Most business owners should expect to pay the following taxes:
- Federal taxes
- State taxes
- Withholding tax
- Income tax
- Sales tax
7) Purchase business insurance
Even though it isn’t as exciting as selecting a name or location for your business, the truth is small business insurance plays a vital role in making your company a success. Not only does it add a layer of protection for your employees, but it also provides coverage for your business.
When looking for a Michigan small business insurance policy, you will want to make sure it includes all the necessary coverages. For instance, the small business insurance bundle offered through Huckleberry combines important products like workers’ compensation insurance, liability insurance, and commercial auto insurance all into one policy.
8) Create a marketing plan, hire employees, and more
As you launch your company, you will notice that the eighth and final step in the process continues for as long as your company exists. While you will need to create a marketing plan and do market research early on, they are both items that will evolve as your company grows.
For example, during the first couple of months after launching your company, you may rely heavily on referrals for most of your business. However, as you gain a more extensive customer base, you might transition to social media advertising or other business development strategies.
This is also true for your team. It’s okay to start as a one-person shop, running and operating the company independently. However, as your business needs change, adding more people to your team might make sense.
The most important part is that you continue to grow and avoid staying complacent along the way.