What is NAICS Code for Small Business: Detailed Guide

Small business owners have a lot on their plates, but there is one resource that can be easily utilized that will assist your business in a variety of ways – having a NAICS code.

Obtaining a NAICS code is a simple and straightforward process that can qualify a business for government contracts, fuel sales, marketing activities, and much more. Let’s go through some more details you should be aware of.

What Are NAICS Codes?

NAICS codes are a 6-digit standard used by government agencies to categorize business entities for the collection, tabulation, presentation, and analysis of statistical data pertaining to the United States economy.

NAICS codes are classified by industry and are based on the methods used to manufacture goods and services. They are self-assigned, so GSA Schedule contractors can use the System for Award Management (SAM) to select the NAICS code that best represents their primary industry.

GSA contractors use NAICS numbers because they can utilize them to locate business possibilities, especially if they are deemed a small businesses.

Does Your Business Need a NAICS Code?

You are not needed to have a NAICS code unless you are a government contractor. (We’ll discuss federal contractors later.) However, presuming that your business, whether a Limited-Liability Company (LLC) or other for-profit entity, does not bid on government contracts and focuses on the private sector, there are a number of other benefits to obtaining your NAICS code.

Although “need” may be an overstatement, getting a NAICS code for your business would be an excellent — if not great — step.

How to Find Out if You Are a Small Business Using NAICS Codes

The simplest approach to finding out for your business is to consult this SBA publication on small business size guidelines. Each NAICS code is allocated a threshold dollar figure for sales or a number of employees, allowing you to evaluate whether your business qualifies as small for opportunities in that NAICS code. If your company falls beneath the budget or employee thresholds, the SBA considers you to be a small business concern.

The SBA’s Size Standards Tool is another useful tool for understanding and determining size standards, as well as seeing how you fit into the small business landscape. Assume you operate an IT firm whose product offering fits under NAICS code 334111, Electronic Computer Manufacturing. Select NAICS and input the number of employees in the drop-down box. The tool will then display the outcome, indicating whether you are or are not a small business eligible for government set-aside contracts.

The Benefits of Having a NAICS Code

There are various advantages to obtaining a NAICS code for your small business, some of which are as follows:

#1. Federal Contracts

The first advantage is that it is more aligned with companies seeking government contracts. A NAICS code is required to participate in government projects. If you want to work for the federal government, there is no way around it. In fact, having a business NAICS code category is the only way to get in, bid on projects, and win contracts.

This can apply to a wide range of businesses, including those in the construction, engineering, and technology industries. Having a NAICS code also allows the government to categorize your company and identify its industry, sector, and key outputs by collecting pertinent business information.

#2. Grants and Incentive Programs

Having a NAICS will also open the door to incentive schemes like grants. Take a look at your state’s government website for a list of programs as well as an explanation of the incentives.

New York’s Energy Cost Savings Program is one example of when a business can profit from having a NAICS code. This program allows qualifying businesses to save up to 45 percent on their energy bills. However, in order to meet the requirements, you must first obtain an NAICS code.

#3. Tax Credits and Exemptions

Depending on your business, you may be able to apply for credits and exemptions specific to your industry. Deductions for farming and agriculture, manufacturing, employee training and retention, and research and development, to name a few. A quick web search of your state’s Department of Taxation and Finance can help you get started and confirm your eligibility.

#4. Loan Approval

When running a small business, having access to money is crucial. Whether it’s for new equipment, improvements, or expanding a product line, small business owners will want a cash infusion to satisfy their needs. When it comes to small business loan consideration and approval, many banks and commercial lenders employ NAICS numbers.

When compared to other firms in your industry, having the correct NAICS code allocated to your business gives a lender a better picture of the risks. This also helps to eliminate inaccuracies that could lead to loan rejection.

#5. Marketing and Research

Many businesses utilize NAICS codes to categorize their providers, partners, and customers. This enables a business to have a better understanding of its sector and accumulate data and statistics that can be used to measure the market, target potential clients, and keep up with trends. This research can be used to analyze the competition as well as target clients and possibilities.

How Do I Find My NAICS Code?

Go to The U.S. Census Bureau’s website to find the proper NAICS code for your business.

Fill up the search field at the top of the screen with “NAICS code.” This will take you to the correct page where you can begin your code search. Enter a keyword related to your business (for example, food, construction, advertising, publishing, transportation, and so on).

On the page, there will be three text boxes where you can refine your search. They progress from broad industries to more focused business sectors. Consider the following example: If you were a health food business that packaged and sold salads, you’d probably start your search with “food” or “health food.”

The system will present you with a list of possibilities from which to choose. Choose the one that best corresponds to your principal output. Because we are a health food firm that prepares and sells salads, the best option, in this case, is “Health food, fresh fruits, and vegetables, merchant wholesalers.”

Read Also: NJ SMALL BUSINESS GRANTS 2023 Updated List (+Quick Guide)

By selecting the 424480 code, the screen will scroll down to a list of firms that belong to your organization. The code for Fresh Salads XYZ is 424480, with the accompanying item of “salads, prepackages, merchant wholesalers.”

However, it is critical to understand that no one grants you an NAICS code. The system is self-assigned, and you are responsible for it. The good news is that the process is rather simple and can be completed at any time; however, the sooner you begin, the sooner you will profit from having a code associated with your business.

If your business has different outputs (items and services), you can have multiple codes as long as they correctly describe your organization and you have ongoing business activity.

Using NAICS to Grow Your Business

If your business relies on government contracts, we’ve demonstrated the advantages of having a NAICS code. To participate in government bids and contracts, you must have an NAICS code. Without one, your company is doomed and ineligible for federal contracts. Let’s look at how having your NAICS code can assist you grow your business in the private sector.

The primary advantage that many firms gain from using NAICS codes is in marketing initiatives. If you are in the service industry, for example, your NAICS code can help you target specific industries and the ideal consumer, as well as find potential new markets and prospects. The NAICS code can also aid in competitive research by providing more information about other companies in your industry.

As a business owner seeking ways to locate the right customers for your product or service, you can collect data and launch a focused marketing campaign using NAICS codes. NAICS data can assist in identifying the right customer based on location (geography), business size (number of employees), annual sales, and other distinguishing qualities and data points that can aid in fine-tuning your search.

The same kind of data collection used to locate partners, providers, and customers may also be used to research the competition and measure the trends and direction of your industry.

Key Differences between NAICS and SIC Classification Systems

The US government continues to utilize NAICS and SIC codes to classify enterprises for the purposes of accumulating, analyzing, and disseminating statistical data about the US business economy. Though NAICS is the more well-known of the two systems, SIC codes are still in use today, despite the fact that they have not been updated in nearly 40 years and do not include categorizations for new enterprises and industries.

As a result, new companies focusing on artificial intelligence (AI), information technology, computer software, cloud, and data storage services, among other things, are not represented in this older system, which was designed to cover more traditional manufacturing-based industries rather than service-based businesses.

One significant distinction between the two systems is that SIC concentrates on a company’s biggest product lines, whereas NAICS organizes enterprises based on production.

Creating a Niche Market with NAIC Codes

Consider how the NAICS classification system can be used to build a niche market and begin consumer outreach and advertising initiatives. Let’s return to our health food business, Fresh Salads XYZ, for the purposes of this example. We’ve already discussed how to locate your NAICS code, which is the self-assigned number 424480. Let’s look at how you may get started and build your business by locating potential customers who would stock your goods in their stores.

Step #1.

Begin at the US Census Bureau website and proceed through the processes outlined above to find your NAICS code.

Step #2.

When it comes to obtaining the necessary data, there are several possibilities. One approach is to use the NAICS company lookup tool. Reference USA can be used to access another database.

Because you are a seller of nutritious salads, your goal is to discover potential salad buyers. The next step is to locate a retailer.

Step #3.

After you’ve identified other businesses that are related to your product, you may move on to finding restaurants, delicatessens, and grocery shops in your neighborhood that could be potential clients.

Custom searches by business type, area, size, sales, and other criteria are available on websites and services such as the NAICS Association and Reference USA. You can access data about possible clients, vendors, partners, or competitors by entering the NAICS code, state, and city.

Step #4.

Create business profiles and contact lists to organize your research and data. The NAICS Association can also help you speed up the data collection process by supplying you with industry-specific lists. Before you join up for a plan, you may also try out 50 free sample records.

Does My LLC Need a NAICS Code?

Some states require businesses to get NAICS codes before registering as LLCs, though this is extremely rare. Using NAICS codes when forming your LLC allows you to appropriately classify your firm based on the size and type of industry or business that you are in.

Do I Need a NAICS Code for My Business?

Is a NAICS Code Required for Every Business? Why? No, and you might not even be necessary to have such a code. If you are a government contractor, however, you will be assigned a code automatically since the government will categorize your business for data analytics purposes.

Do You Pick Your Own NAICS Code?

The NAICS was created in such a way that it is simple for businesses to determine their own NAICS. There is no centralized agency that assigns or approves NAICS codes for businesses. Business organizations instead self-assign their NAICS codes. IBISWorld makes it simple to look up an NAICS code, industry, product, or service.

How Do I Get a NAICS Code for My LLC?

To find out what NAICS Code is being used for a given company, use NAICS.com’s US Company Lookup Tool. To find the correct code for your business, utilize the NAICS SEARCH TOOLS to find the code that best represents your principal business activity (revenue-producing activity).

Do Individuals Have a NAICS Code?

When firms file government documents, NAICS codes are sometimes sought. However, unlike other government-issued numbers, such as EINs, NAICS codes are not assigned to specific businesses.

Conclusion

Even if you’re just starting out, having the right NAICS code or codes assigned to your LLC will only benefit you by opening doors to federal contracts, grant programs, and incentives, as well as acting as a marketing resource to target your customer search, study the competition, and forecast the direction of your industry. It is also one of many critical decisions that you will have to make as a business owner.