Starting and Operating a Small Business in Michigan

Guide to Starting and Operating a Small Business

• A guide for entrepreneurs in all 83 counties in Michigan, brought to you by the Michigan Small Business Development Center.
• The guide was revised in April 2024.

Table of Contents Overview

• Starting a Business are covered on pages 7-26.
• Michigan SBDC Business Plan Outline are covered on pages 28-36.
• Business Legal Issues are covered on pages 38-54.
• Financial Management are covered on pages 56-62.
• Marketing Your Business are covered on pages 66-85.
• Hiring Your First Employee are covered on pages 88-98.

Michigan Small Business Development Center (MI-SBDC)

• MI-SBDC assists small businesses with counseling, training, and research.
• The organization provides assistance with business plan development, market research, raising capital, business education, technology commercialization, financial management, export strategy, strategic planning, and human resources.
• For in-person and online training, the website is michigansbdc.org.

Chapter 1: Starting a Business - Welcome

• The Michigan Economic Development Corporation (MEDC) and the Michigan Small Business Development Center (MI-SBDC) help new businesses to launch and grow.
• MI-SBDC offers counseling, training and research services to help small businesses statewide launch, grow, transition and innovate.
• The guide is an informational resource to simplify business operations in Michigan, covering:
  • Steps for starting a business
  • Ways to organize the business
  • Key elements of a business plan
  • Federal, state, and local tax obligations
  • Basics of management, hiring and marketing
• For online resources, visit Ims.michigansbdc.org.
• Additional resources in Michigan include:
  • U.S. Small Business Administration (SBA)
  • Michigan Economic Development Corporation (MEDC)
  • Local economic development organizations, trade associations, chambers of commerce, schools, community colleges, and public libraries.
• To contact a local MI-SBDC office, visit michigansbdc.org.

Personal Assessment: Starting a Business

• Self-employment is not for everyone; this assessment helps evaluate personal, professional, and financial readiness.
• The assessment helps to assess qualifications.
• The self-evaluation includes setting personal and business goals.
• The self-evaluation includes consideration of the right time to start a business.
• Resources to start a business need consideration.
• Health and stamina need evaluation.
• Family and business obligations need a plan.

Steps to Starting a Small Business

• The 10 steps that should be followed are self-assessment, select a business idea, perform market research, refine or reconsider your business idea, analyze startup costs, write your business plan, complete the startup checklist, secure financing, and start your business.

Step 2: Select a Business Idea

• To select a business idea, consider your strengths, passions, skills, helpfulness, and identified unmet needs.
• Make a list of 5-10 ideas and evaluate them against the personal assessment to identify the greatest opportunities through market research.

Step 3: Perform Market Research

• Market research is critical for determining the feasibility of ideas.
• Market research helps to gather facts and statistics to inform decisions about the market size/potential of a business.
• B2C: Sells products and services directly to consumers, such as grocery stores, art galleries, hardware stores, lawn service providers, and pizza parlors.
• B2B: Sells products and services to other businesses, such as suppliers, parts manufacturers, marketing agencies, and technology companies.
• Some businesses incorporate both, such as a farm selling to restaurants (B2B) and at farmer's markets (B2C).
• Michigan SBDC Consultants can assist with secondary research at no cost.
• Industry research helps understand the business's big picture such as how many pizzas are sold in the U.S. and Michigan each year, related trends, and the number of pizza parlors in business.
• The market includes all potential customers, while customers are those who buy. Market segments, sharing common traits, are within the market.
• When performing market research for market size and customers, address questions such as how many people and businesses are buying food in the area, how often they buy food, and segments most likely to buy and how big they are.
• Multiplying the number of likely customers by purchasing frequency and price estimates market potential. For example, 100 customers ordering 20 pizzas at $15 each yields $30,000 in potential revenue each year.
• Direct competitors sell the same products or services.
• Indirect competitors sell similar or alternative products or services.
• Researching competition includes identifying locations, characteristics, alternative options, unmet needs, unique offerings, and reasons for customer dissatisfaction.
• Sources for market research include the library, the Internet, industry experts, successful business owners and surveys.
• The library is recommended as a source for market research including publications from trade associations, trade journals, census reports, and governmental statistics.
• The internet is recommended as a source for market research including keywords, search results visually scanning materials and trusted website and competitor insight.
• Some resources include mel.org and thomasnet.com.
• Primary sources involve industry experts, successful business owners and surveys.
• Other actions include visiting potential competitors and hiring research firms. Becoming a good market researcher is a valuable business skill that is the basis for evaluating potential opportunities.

Market Research Checklist

• Includes size of the industry. growth potential and historical trends
• Best opportunity: businesses (B2B), consumers (B2C), or a combination of both?
• Segments (groups with similar attributes)
• Segment(s) with the greatest need and/or demand
• Direct competitors versus indirect competitors.
• Best opportunity: businesses (B2B), consumers (B2C), or both.

Step 4: Refine and Reevaluate Your Business Idea Is It Viable?

• Based on market research, determine if the business idea is viable.
• It is important to determine if there is, in fact, a need or opportunity in the marketplace for your products or services.
• A company must determine its most valuable customers and problems the company solves for them.
• Companies must determine what their value proposition is (definition on pg. 70) in order to distinguish the company from its competitors or alternative providers.
• Create a pricing "menu" for products and services with expected margins.
• Profitability is essential for sustainability, growth and fulfilling long-term goals.
• Base decisions on facts over feelings.

Step 5: Analyze Your Startup Costs

• Common financial missteps include underestimating the cost of starting a business, discovering higher-than-expected expenses, unrealistic expectations about resources, and unrealistic expectations on how quickly money will be made.
• Startups should have a well-researched understanding of costs, available resources and feasibility.
• "Bootstrapping" involves using existing resources to work toward a larger goal.
• Building slowly includes working part-time and growing customers.
• One should determine funding needs to launch the business.

Funding Your Business

• One needs to estimate costs and then determine the funding for the business.
• A common form of personal financial resources is liquid cash.
• Personal funding also includes sales on financial assists.
• Grants are a source of funds to receive toward a business.
• Grants are not usually readily available, there are funding scams that one must avoid.
• Information on where to look for grants include:
  • grants.gov
  • sba.gov/funding-programs/grants
• There are loans to look into which include:
  • Credit history
  • Cash
  • Collateral
• There are community development financial institutions (CDFIs).
• One of the best known loans is through SBA Loans.

Step 6: Refine and Reevaluate Your Business Idea Is It Feasible?

• Review costs and make data-driven decisions.
• In order to answer that fundamental question, you will need to answer other questions like:
  • Will investing in your business idea put you in financial jeopardy?
  • Can you justify the financial risk with the potential business value of your idea?
  • Will you be able to generate enough sales in a reasonable amount of time to offset the costs of launching your business?
• Data-driven decisions are very important.

Step 7: Write Your Business Plan

• Business plans are needed in order to seek out financing and investors.
• Ideas are a plan.
• Writing your business plan is a test.
• After launch businesses still need the plan.

Step 8: Complete the Startup Checklist

• Forming and finalizing your business structure and legal entity is needed.
• If needed, Purchase an Existing Business.
• Develop Your Business' Image and Branding.
• Selecting a name and legal structure is important.

Employer Identification Number (EIN) and Taxpayer Identification Number

• A critical step in launching a business is getting an EIN.
• Startups and expanding businesses need to make sure that the location of their space complies with all local laws and regulations.

Employee Considerations

• There are considerations including additional responsibilities at both the state and federal government levels.

Step 9: Secure Financing for Your Business

• This process starts by having the business plan before signing a site lease or purchase agreement is required.

Step 10: Start Your Business

• B2B companies should use the Michigan Economic Development Corporation's (MEDC's) Pure Michigan Business Connect (PMBC) service.
• Pure Michigan Business Connect helps you to forge partnerships and grow your business, connect with PMBC sign up.

Chapter 2: Michigan SBDC Business Plan Outline

• A business plan communicates your business's information, goals, and the market it serves.
• Major sections should be drafted first in a business plan.

Section 1: Company Introduction and Description

• Answer basic questions such as how and why the company was formed, how long it has been in operation, where it is located, and its legal entity.
• Highlight elements such as an overview of company capabilities, location, hours, product or service description, present state of development (if applicable), mission, vision and values, intellectual property status, commercialization strategies, and SWOT analysis.

Section 2: Market Analysis

• Breaking up market analysis into segments, such as the following:
  • Industry
  • Market
  • Customers
  • Competition
  • Marketing and Sales Plan

Section 3: Management and Operations

• Focuses on how the business will be run and how to achieve customer satisfaction.
• Focuses on how the roles and responsibilities of staff members are and how the company will grow as demand for its product or service increase.

Section 4: Financials

• You need to identify the financial goals and projections for your company.
• You need to outline the funds you need and how you will obtain them.
• Start by providing your estimated monthly costs, both fixed and variable.
• A break even analysis can help you identify what sales goals your company needs to meet in order to make a profit.

To Calculate Profit follow this formula

• BEQ = FC / (AP – VC) (FC = fixed costs per month, AP average price per unit, VC = variable costs per unit).

Other factors to put into consideration when it comes to financials in a business

• Monthly Cash Flow Projections for 3-5 Years
• Financial Assumptions
• Profit and Loss (P&L) Statements (If Applicable)
• Prior Financing (If Applicable)
• Financial Need
• Exit Strategy

Section 5: Appendices

• Include documentation that doesn't fit into any section or that would detract from the forward momentum of your plan's structure such as (see Appendix A). In your appendices at the end of your business plan, you can then include supporting documentation.

Chapter 3: Business Legal Issues

• Your business will face a wide variety of legal issues surrounding your business.
• You should consider the type of business you run and your relationship with investors, partners, and other key members of your team. There are major factors to consider in choosing a legal entity.

Sole Proprietorship or Sole Proprietor DBA

There are various advantages and disadvantages to being a Sole Proprietorship or Sole Proprietor DBA.

LLC as a Business Model

• Advantages

  • All the benefits of LLC structure.
  • Qualification as Program Related Investment (PRI), facilitating foundation investments.

• Disadvantages

  • PRIs are rare and considered risky, with potential excise tax liability to the foundation.

What is a Business Legal Issue?

• Attending to legal issues is crucial for planning and operating a business.
• Legal consideration included:
  • structure
  • permits
  • regulations
• One can choose between creating a sole proprietorship or partnership. Consult with a business attorney and tax professional before you register your business.
• If you have questions about anything, it is best to consult an attorney.

Licenses, Permits, and Business Regulations

• Depending on the type of business, you may need a specific certification, license, or permit to operate but there is no generic Michigan business license.

Considerations about Zoning, Building Codes, and Ordinances

• As you start or expand your business, regulations are something you must comply with.

Streamline your State Taxes with Michigan Treasury

• The MTO self-service tool is easy to access, easy to navigate, and available 24/7.

Business Insurance

• You will also want to consider what types of insurance you need for your business. Types of insurance that you will want to investigate include will be liability insurance, property insurance and workers compensation insurance.

Understanding HIPPA

• HIPPA has various components that have to be meet.

Special Considerations for Selling to Governmen

• The government buys a lot from small businesses.

APEX Accelerators for Government Bidding

• Getting your business registered for bidding on contracts or direct government purchases requires specific procedures.

Small Business Certifications

• When the federal government allocates government spending, it establishes set-asides of total government contract.

Chapter 4: Financial Management and Cybersecurity

• Proper financial management practices includes bookkeeping, projections, financial statements and financing, which is the foundation to reaching your goals and make sound business decisions.

SAM.gov

• You should also register your business with SAM.gov to receive an alpha-numeric Unique Entity ID (UEI. To get a Unique Entity ID (UEI), visit sam.gov/.

Establishing a Budget

• A budget is the first step with your financial management practices.

Bookkeeping

• Bookkeeping is the organized process of tracking all income and expense transactions, and it's a critical component of financial management.
• Obtain Business Accounting Software
• Open Separate Business Bank Accounts
• Reconcile Your Business Accounts
• Track Sales
• Deposit All Sales
• Write Business Checks or Use a Business Check Card for All Business Expenses
• Obtain a Separate Business Credit Card
• Always Pay Business Expenses First
• Run a Profit and Loss (P&L) Statement
• Pay Yourself With an Owner's Draw

Other Financial Considerations

• Cash Flow and Cash Flow Projection.
• Tracking Financial Recordkeeping.
• Creating Separate Bank Accounts for Your Business.
• Cybersecurity, Take It Seriously.
• Ransomware Attack Dos and Don'ts.

Chapter 5: Marketing

• Key topics in marketing you should understand is brand, budget, marketing plan and KPI

What Defines Your Brand?

• Every business has a brand, the most successful have been carefully and thoughtfully designed.
• Branding is the process of crafting your business identity. To define Brand you must consider the Business Story.
• Business Value in competitive comparison.

Setting a Marketing Budget

• Setting money aside for marketing may be difficult, but your business can't succeed without marketing.

KPIs Important to Track:

• Revenue
• How sales.
• Cost per lead.
• Customer Acquisition and rate.

Financials

• The section will focus on how money will be extracted from the business.

Chapter 6 : Hiring Your First Employee

• Employees add a layer of complexity to every business.
• It is best to get a Professional Assistance when it comes to HR, payroll and taxes. Here is the order to getting hired :
• Crafts Your Hiring skills and strategies
• Knowing employee vs. contractor
• Hiring process

What Employee documentation is required

• Required Workplace Posters for Michigan. Also required are Federal Workplace Posters.