As a small business owner, you’ll learn a lot of new jargon and procedures that are unique to the business world. One such term that you may come across is a NAICS (pronounced “nakes”) code.

In short, the NAICS code system helps standardize the classification process of businesses throughout North America. Here’s what you need to know about NAICS codes, including how they’re used, whether they impact your business credit score, how to find your code, and more.

What Is a NAICS Code, and How Is It Used?

NAICS stands for North American Industry Classification System, and it was created in 1997. 

The system was developed to solve some of the problems with the Standard Industrial Classification (SIC), which was developed in the 1930s and focused only on U.S.-based businesses.

Over time, as small businesses expanded beyond the U.S. and new industries were created, the NAICS system expanded on the SIC system to provide more accuracy. 

NAICS codes have up to six digits. The first two signify the company’s economic sector, and the third defines the subsector your business is in. The fourth digit determines the industry group, the fifth is the industry type, and the sixth signifies the industry by nation. 

A company typically only has one for purposes of the Census Bureau, but other government agencies, trade associations, and regulation boards may have their own lists that can vary from what the Census Bureau has on file. Here’s how NAICS codes are used:

• Statistical information: The NAICS system was developed by the Federal Statistical Agencies, primarily to aid in the collection, analysis, and publication of data within the U.S. economy.
  
• Size classification: Depending on your industry and revenue numbers, there can be different standards for what constitutes a small business. But even within industries, it doesn’t make sense to classify certain businesses the same way.
  
  For example, consumer lending businesses and collection agencies are classified with two separate NAICS codes. According to the U.S. Small Business Administration, collections agencies are small if they have $16.5 million or less in annual revenue.
  
  If you’re in the consumer lending niche, though, you’re still considered small up to $41.5 million in revenue.
  
• Government contracts: If you’re trying to obtain a government contract, the size of your business matters. Using the size classification from the SBA, government agencies may use your NAICS to determine your eligibility.
  
• Other federal purposes: NAICS codes may also be used by the Department of Revenue to help create legislation or by the government to provide tax incentives. It can even be used by the IRS for administrative purposes.

How Does It Affect Business Credit?

Small businesses already have a harder time obtaining credit than consumers, especially when the business is still new and the threat of failure remains high.

Your NAICS code is recorded in your business credit reports, along with your credit activity. Unfortunately, this means that your NAICS code could potentially hurt your business credit and make it difficult to get approved for financing when you need it.

This is because some industries tend to be riskier than others. According to the NAICS Association, higher-risk industries include auto dealers, casinos, travel agencies, restaurants, convenience stores, and more.

If you were to try to get financing for your business and you’re in a high-risk field, you may end up paying a higher interest rate or getting denied altogether. The same goes when seeking out vendors and suppliers, which can pull your business credit reports without your permission. 

How Do I Find Out What My NAICS Code Is? 

NAICS is a self-assigned system, which means that the government doesn’t determine your NAICS code. 

Rather, you’ll choose the NAICS code that best describes your business. If your business has more than one unique line of business, you may end up choosing more than one NAICS code.

You can find available codes via the NAICS Association database. Start by entering a keyword to help you narrow down your list of options, then search the list to determine the code that best fits your business.

If you’re not sure about what your NAICS code should be, you can contact the U.S. Census Bureau at NAICS@census.gov or 888-756-2427.

Common NAICS Codes

There are 20 economic sectors listed in the NAICS Association database, and you can get unique codes for each by clicking on the two-digit sector identifier.

Based on the top three sectors, here are some of the most common NAICS codes within those sectors:

Professional, Scientific, and Technical Services

• 541110 offices of lawyers
  
• 541211 offices of certified public accountants
  
• 541213 tax preparation services
  
• 541330 engineering services
  
• 541320 landscape architectural services
  
• 541511 custom computer programming services
  
• 541512 computer systems design services
  
• 541611 administrative management and general management consulting services
  
• 541618 other management consulting services
  
• 541921 photography studios, portrait

Other Services (Except Public Administration)

• 811111 general automotive repair
  
• 811121 automotive body, paint, and interior repair and maintenance
  
• 811192 car washes

• 811412 appliance repair and maintenance
  
• 812112 beauty salons
  
• 812113 nail salons
  
• 812199 other personal care services
  
• 812910 pet care (except veterinary) services
  
• 813110 religious organizations
  
• 813410 civic and social organizations
  
• 813910 business associations

Retail Trade

• 441110 new car dealers
  
• 441120 used car dealers

• 441110 furniture stores
  
• 443142 electronics stores
  
• 444110 home centers

• 445110 supermarkets and other grocery (except convenience) stores
  
• 445120 convenience stores
  
• 445291 baked goods stores
  
• 446110 pharmacies and drugstores
  
• 447190 other gasoline stations
  
• 448120 women’s clothing stores
  
• 448310 jewelry stores

• 451110 sporting goods stores

Can You Change Your NAICS Code?

For the most part, your NAICS code is self-assigned, so if an agency or organization has the wrong code for your business, you can contact them directly to file a request to correct it. 

Unfortunately, there is no official way to change your NAICS code across all organizations and agencies that have one on file for your business. So you’ll need to go through this process with each individual organization that has the inaccurate code.

Your NAICS code may also change over time as the Office of Management and Budget reviews the system every five years to determine if potential revisions are needed. The next scheduled review for the NAICS system will occur in 2022.

The Bottom Line

Your business’ NAICS code is an important way to classify your business, not only for statistical purposes but also to help you obtain credit, get government contracts, and more. 

If you’re asked to provide your NAICS code for any reason, it’s important to make sure that you find the correct code to describe your business.

If you choose the wrong code, your business may be evaluated by lenders, government agencies, and other organizations differently than it should be.

This is especially important when it comes to your business credit history. If your business credit score has dropped because of a wrong NAICS code, it could end up costing you money. 

That said, if you do operate in a high-risk industry, it’s important to be honest about your NAICS code, so you don’t end up in trouble.

Keep an eye out for adjustments to the NAICS system every five years and make changes as needed to ensure that your business is being classified accurately.

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