Since the 2008 recession, Michigan’s economy has shown strong indications of recovery, and there are a variety of reasons why the state appeals to both entrepreneurs looking to establish a firm and the people they need to recruit.
The state of Michigan has a low cost of living and affordable business income tax rates. While the real estate market is once again on the rise, it is still possible to get residential and commercial property at reasonable prices. Small firms are now confident about the future, when they were earlier pessimistic.
Here are a few small business statistics that will shed some light on the Mitten State’s entrepreneurial landscape.
Quick Michigan Small Business Statistics for Entrepreneurs
- 99.6% of Michigan enterprises are small businesses.
- Small business employees represent 48.3% of Michigan employees.
- Military veterans make up 4.2% of workers and own 5.9% of small businesses.
- Racial minorities own 15.4% of small businesses in Michigan.
- In 2019, small businesses exported goods worth $9.9 billion.
- The per capita disposable income in Michigan is $48,423.
- Health care and social assistance sectors collectively account for the third largest sector in terms of small business investment.
- In the 2021 CNBC “Top States for Business” report, Michigan is ranked 11th out of 50 states.
- Between March 2019 and March 2020, 19,214 Michigan businesses opened and 29,985 closed, resulting in a net loss of 10,771.
- Total small business revenue had declined by 15.9% as of August 9, 2020, when compared with January 2020.
1. What is considered a small business in Michigan?
The Small Business Administration defines a small business as a sole proprietorship, partnership, or corporation with a maximum of 500 employees or a maximum of 1,500 employees, depending on industry.
There are 902,131 small businesses in Michigan that account for 99.6% of all enterprises in the state.
2. How many people are employed by small businesses in Michigan?
There are approximately 1.9 million small business employees in Michigan, representing 48.3% of all employees in the state.
According to the Michigan Improved Workforce Opportunity Wage Act of 2018, the state’s minimum wage is set to increase on an annual basis.
On January 1, 2022, the minimum wage increased to $9.87 an hour from $9.65 the previous year. This wage applies to most employees in Michigan with exception to tipped employees who earn $3.75 per hour (up from $3.52 in 2021), and minors aged 16 to 17 years old who can only be paid 85% of the minimum wage, which is $8.39 per hour.
However, the training wage of $4.25 an hour for newly hired employees ages 16 to 19 for their first 90 days of employment remains unchanged.
3. Michigan small business statistics by industry
The professional, scientific, and technical services sectors collectively account for the largest number of small businesses invested in a single industry, a total of 110,158. Approximately 90,786 firms within these sectors are nonemployer businesses, 17,696 have 1–19 employees, and another 1,676 have between 20 and 499 employees
The utilities sector has the least share of small business investment, with just 320 firms currently operating within the sector.
4. Michigan small business ownership by ethnicity
Michigan has a population of 10,050,811 residents and an annual population growth rate of 0.1% for the next five years, ranking 35th out of the 50 US states. White/Caucasian Americans are the major ethnic group, representing 79.2% of the population. They are followed by Black/African Americans (14.1%), Hispanic/Latino Americans (5.3%), Asian Amerricans (3.4%), and American Indians and Alaska Natives (0.7%).
The figures below show how small business ownership is distributed among these groups:
- White/Caucasian — 725,345
- Black/African American — 95,613
- Asian Americans — 33,042
- Hispanic/Latino Americans — 22,608
- American Indian and Alaska Native — 2,322
- Native Hawaiian and Other Pacific Islander — 219
5. Michigan small business ownership by gender
Women own 332,223 small businesses in Michigan. Around 303,000 of these firms are nonemployer businesses, while 29,223 have employees. Men own 487,494 small businesses, 382,000 of which are nonemployer businesses, while 105,494 have employees.
There are also 37,849 small businesses in the state that are owned by both men and women.
6. Business taxes in Michigan
Standard LLCs, like S corporations, are pass-through organizations that do not have to pay income taxes to either the federal government or the state of Michigan. Instead, the LLC members get revenue from the firm, and each individual member is subject to federal and state taxes on his or her portion of the company’s profits.
While LLCs are typically taxed as partnerships (or, in the case of single-member LLCs, disregarded entities), you can elect to have your LLC taxed as a corporation. The LLC would thereafter be liable to Michigan’s corporate income tax. The top corporate income tax rate is 6%.
It is important to always be compliant with your annual tax reporting. Failure to adhere to the Michigan tax code will land you and your business in serious legal trouble. Thankfully, that’s where registered agents come into play.
A good registered agent will not only help you with your tax filing issues but will also send constant reminders so that you don’t miss any important filing dates. Read my review of the best registered agents in Michigan to find out which agent is good for your business.
7. Small business financing in Michigan
The Community Reinvestment Act is a federal law in the United States that encourages commercial banks and savings institutions to assist borrowers in all aspects of their communities, particularly low- and moderate-income districts.
Large banks are required by the Community Reinvestment Act to disclose new small business loans. In 2019, reporting banks gave out $2.1 billion in loans to Michigan firms with less than $1 million in annual revenue. Total reported new lending to firms with loans of $100,000 or less was $2.1 billion, while total reported new lending to businesses with loans of $1 million or less was $7.2 billion.
8. How COVID-19 affected small businesses in Michigan
Based on the percentage of employees in sectors with a high or medium-high degree of exposure to COVID-19, Michigan has the 25th greatest economic exposure to COVID-19 of all states in the US.
In Michigan, 49% of all employees, or 2,476,921 people, work in industries with a high or medium-high degree of economic exposure to COVID-19. Roughly 775,800 Michigan workers are working in industries with a low or medium-low degree of economic exposure to COVID-19, accounting for 15% of all employees.
9. Michigan small business export statistics
In 2019, a total of 14,773 identified enterprises exported items totaling $51.8 billion from Michigan. Approximately 13,080 (or 88.5%) of those exporters were small. Small businesses shipped items valued at $9.9 billion, accounting for 19.1% of all recorded business exports.
10. Advantages of establishing a business in Michigan
Here are a few reasons why you should open your business in Michigan:
- Low cost of living: Michigan’s cost of living is nearly 10% lower than the national average, making it the fourth most affordable state in the US. Entrepreneurs benefit from reduced real estate prices and low taxes. According to Sperling’s Best Places cost-of-living index, Michigan is much less costly than the rest of the country, particularly in terms of housing prices. A single adult without dependents could fulfill all their needs in Michigan on a wage of around $13.63 per hour, according to MIT’s living wage calculator.
- Strong manufacturing industry: Manufacturing is one of Michigan’s most important industries. According to the Bureau of Economic Analysis, manufacturing industries account for around 16% of Michigan’s GDP. Michigan has a long history of entrepreneurship and engineering, and there is a big concentration of engineering expertise and industrial infrastructure within a short distance. In fact, Michigan boasts the nation’s highest concentration of engineers. This makes it appealing to entrepreneurs in the manufacturing industry.
- Support from the state government: The state of Michigan provides support to small businesses through a series of incentives, such as the Employee Retention Tax Credit (ETRC), which is designed to make it easier for businesses that, despite the challenges posed by COVID-19, chose to keep their employees on payroll. Other incentives include MI-STEP (Michigan State Trade Expansion Program), Capital Access Program, and the Northern Initiative program.
Starting a business is a thrilling experience. However, due to the amount of paperwork required, the process of starting a business may be rather stressful. Consider enlisting the services of an LLC formation service, which will handle the legal aspects of business creation and allow you to focus on more vital business tasks.
Read my analysis of the best LLC services in Minnesota to determine which organization provides the best formation services for your company.
The Final Word
For a variety of reasons, the Great Lakes State is an excellent spot to start your business, due to the abundance of business assistance programs available to organizations of all sizes, from start-ups to well-established enterprises. Nearly half of the US and Canadian population and economic hubs are within 500 miles of Michigan, giving unrivaled market access to small business owners in the state.