An essential tool within the North American Industry Classification System, a NAICS code deciphers the economic activity of businesses across sectors.
Every business, including LLCs, is assigned one primary NAICS code that precisely articulates its principal business activity to various stakeholders – from government agencies and statistical authorities to commercial lenders and potential customers.
This six-digit coding system is key for business compliance, statistical analysis, and government contracting.
As financial advisors well-versed in industry classifications, we know the necessity of pinpointing the right NAICS code for your LLC. Let’s delve deeper to understand its significance and the processes involved.
- NAICS codes serve as valuable tools for comprehending business performance within respective industries and unlocking new possibilities, including government contracts.
- For multiple business activities, a secondary NAICS code or even multiple codes can accurately depict varying activities, aiding in standard industrial classification.
- The LLC’s NAICS code system proves beneficial for small businesses, facilitating activities such as small business loan applications and public comment solicitation.
What Is a NAICS Code?
A NAICS code is like a business’s ‘ID’ within the North American economy. It’s a six-digit number that identifies the primary type of work a business does, helping everyone from the government to potential customers understand what that business is all about.
Why You Should Get a NAICS Code
Obtaining a North American Industry Classification System (NAICS) code, an integral element of your LLC formation is far from being a mere bureaucratic step.
In our experience, an accurate business NAICS title serves as a compass that can guide your business through the maze of industry complexities and governmental red tape. Here are some compelling reasons:
1. Gain In-Depth Knowledge of Your Niche or Industry
A business NAICS code, by its very nature, classifies businesses into their respective industry groups. This categorization offers you a snapshot of your industry’s landscape, helping you identify trends and opportunities.
For instance, the US Census Bureau uses NAICS codes for publishing statistical data related to various industries, providing a wealth of information that you can leverage for strategic planning.
2. Identify Your Customers and Competitors
By understanding what NAICS codes apply to your LLC, you can uncover valuable insights about potential customers and competition.
For example, online resources like NAICS Association and business databases classify businesses using NAICS codes, enabling you to identify other businesses in your industry sector and even the desired industry of your target customers.
3. Explore Government Grants, Contracts, and Loans
NAICS codes are widely used by federal and state governments, including the Small Business Administration, for awarding contracts and grants.
By obtaining the appropriate code for your LLC, you qualify for a range of government projects, grants, and small business loans, tailored to your specific industry.
For instance, according to this study, industry classification codes, including NAICS codes, are used to sample high-technology firms.
4. Maximize Tax Benefits
The tax benefits attached to your NAICS code can be substantial. For instance, some codes are associated with tax credits or deductions sanctioned by the federal government for stimulating certain business activities—potentially saving you a significant amount in annual taxes.
5. Evaluate Insurance Rates
Insurance companies often reference NAICS codes to assess the risk level of a business’s activities, influencing the rates they offer. Hence, selecting a specific code can result in more accurate and potentially lower insurance rates.
6. Ensure Business Compliance
NAICS Association codes are integral to LLC compliance. From IRS tax filings to regulatory reporting, a correct NAICS code ensures your business is recognized and classified correctly by government agencies.
How to Get a NAICS Code for LLC
Obtaining a NAICS code quickly for your business is easy and a step that can enable you to obtain government contracts more effectively, qualify for business loans, and reap other benefits. Let’s break the process down step-by-step:
Step 1: Perform a NAICS Code Lookup
Start your journey by visiting the NAICS website of the US Census Bureau. You can perform a keyword search or browse by sector to find potential codes that apply to your small business.
For instance, if you run a coffee shop, search for keywords related to your business’s primary activity like “coffee” or “cafeteria”.
Step 2: Choose Your Industry
The North American Industry Classification System website returns a list of potential industries corresponding to your keyword search. From this list, choose the industry that best describes your LLC’s primary business activity.
For example, if “Coffee Shops” shows up in the NAICS search results and your LLC is indeed a coffee shop, this would be an appropriate choice.
Step 3: Identify Your NAICS Code
Once you’ve selected the right NAICS industry from the list, you’ll find a six-digit code associated with it. This is your company’s NAICS code. For instance, the NAICS code for “Coffee Shops” is 722515.
Do You Need a NAICS Code?
As we wrap up, we’ve gleaned valuable insights from our exploration into NAICS codes. The NAICS classification system, in essence, helps to organize and analyze the business economy in ways that are beneficial not only for statistical agencies but for businesses themselves.
Does your LLC require a NAICS code?
If your business has multiple activities, your particular code, along with any secondary code, can help you to properly classify these. It has been our experience that many businesses, especially small businesses, find they can benefit from this system.
In the end, it’s about better understanding your business and its place in the industry, and ensuring that you’re able to take advantage of all opportunities available to you.
Who is responsible for assigning NAICS codes to businesses?
LLC NAICS codes are self-assigned by business establishments based on their primary economic sector or industry group. No government agency assigns them to you.
Is there a fee for assigning or renewing a NAICS code?
No, there are no fees involved in assigning or renewing a NAICS code. These codes are simply tools for statistical information and data collection purposes.
Can a business have multiple NAICS codes?
Yes, a company can have more than one code. Businesses with multiple activities often have one primary and one or more secondary NAICS codes, reflecting their different industries.
Is it possible to change the NAICS code for a business?
Yes, if a company diversifies its activities or shifts its focus to a new national industry, it can change its NAICS code accordingly.
Where can I find a comprehensive list of NAICS codes?
You can find a comprehensive list of NAICS codes on the official U.S. Census Bureau’s website. This list is regularly updated to reflect new industries and changes in the economic field.
Are NAICS and SIC codes essentially the same thing?
No, a NAICS code and a SIC code are not the same. While both are used for classifying businesses, SICs, developed in 1937, have been largely replaced by the more detailed NAICS system, implemented in 1997 to better reflect modern industries.