NAICS Code 101 – What is it and why it’s important

NAICS Codes Explained

According to the United States Census Bureau, The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.

A NAICS aka NAKES Code is a series of codes in the NAKES system that tell procurement agencies what industry your business is in.

The first step you should take as a business owner is to determine your business venture’s primary business activity and revenue-producing lines.

Importance of NAICS Codes

The NAICS code is meant to describe the primary business activity, which is why businesses that have more than one revenue-producing line of business can attribute more than one NAICS to their business. NAICS Codes provide information about your company’s market sector and the industries in which it operates.

These codes also give you insight into how your business can best target customers and markets.

That’s why it is essential to be as specific as possible when selecting this code.  It is even more important to make sure you select the correct code the first time around.

Another benefit is that you can determine whether your business is considered a small business and can therefore reap the benefits of small business set-aside contracts. It’s important to note that the NAICS Code system is self-assigning, so when you do your NAICS code lookup, make sure you pick the most relevant code for your business.

Make sure you pick the most relevant code for your business.

Each valid NAICS code is six digits long, with each digit representing a finer level of detail. In the present system:

• Digits one and two designate the economic sector.

• Digit three designates the sub-sector.

• Digit four designates the industry group.

• Digit five designates the NAICS industry.

• Digit six designates the national industry.

The sixth digit allows the three countries who participate in the system, the United States, Canada, and Mexico, to include country-specific detail.

High-Risk NAICS Codes and Your Business  

Certain codes associate with industries posing more risk than others. If you happen to choose one of these high-risk codes unnecessarily, you may get a funding denial. If you understand how the system works, you can choose the best code the first time.

Some examples of high-risk industries include:

• Casinos

• Pawn shops

• Liquor stores

• Automotive dealers

• And even restaurants

So, remember, selecting the correct NAKES code is very important to the start-up point of your business journey.  It can determine the risk of lending and more as you take on the venture to secure funding for your business.

To determine the appropriate code for your Business Entity, kindly visit the official website. Or contact the Census Bureau at 1-888-756-2427 or email NAICS@census.gov.

Well, that’s all for now! We hope this information is valuable to you. Come back in the future for updates on this and other topics.

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