An NAICS code, sometimes referred to as a “nake”, is useful and necessary for business owners who are bidding on government contracts anywhere in North America. This number can be up to 6 digits long and is used as a way for government agencies to quickly identify and categorize the type of business and services that you provide. Each of the individual code numbers has unique and specific NAICS descriptions. If you want to land the contract, then you have to make sure that your code matches your business industry classification.
North American Free Trade Agreement
In January of 1994, President Bill Clinton signed this into law. Also referred to as NAFTA, this now required the countries of the United States, Canada and Mexico to come up with the same method for classifying all of our competing businesses for each of these three governments. The NAICS code was the final result. These numbers, along with the corresponding NAICS descriptions, were designed as a common method for all three governments to collect, analyze, define, publish, and organize the numerous industries and business establishments that contribute to this collective North American economy. Think of these codes as a “common language” so that nothing gets lost in translation.
Replacement of the SIC Codes
Before NAFTA, each of these three countries used their own unique system of classification. The United States had been using the Standard Industrial Classification Code, or SIC, adopted in 1937 which is now replaced with the NAICS code. Although, some companies still tend to use both the SIC and the NAICS numbers, which can be somewhat confusing. With all three countries using the same codes, our Canadian and Mexican neighbors can more easily research and evaluate our United States businesses, and vice-versa. It evens the playing field for everyone, in theory. These NAICS descriptions and codes will be needed when applying for GSA Schedules, Minority Business Status, Income Tax Returns, SBA 8a Certifications, and a whole host of other licenses and services.
How to Read the Numbers
There is a very specific “hierarchy” or structure to the NAICS code.
- 2 Digit Numbers signify “Sectors”
- 3 Digit Numbers signify “Subsectors”
- 4 Digit Numbers signify “Industry Groups”
- 5 Digit Numbers signify “Industries”
- 6 Digit Numbers signify a National Specific Category Unique to an Individual Country
In general, the longer numbers are assigned to more specialized area of a field of business or industry. Here is an example of an increasing hierarchy of similar classifications:
- NAICS #56: Administrative and Support and Waste Management and Remediation Services
- NAICS #561: Administrative and Support Services
- NAICS #5613: Employment Services
- NAICS #56131: Employment Placement Agencies and Executive Search Services
- NAICS #561312: Executive Search Services
20 Different “Sectors”
In the old SIC Coding method, there were only 10 individual sectors. With the new NAICS descriptions and codes, these were increased to 20. Again, this was not an attempt to make things more difficult on the American Business Owner, but it was intended to make things easier for each of the three governments to better compare competing companies of different nationalities. For a complete list of each NAICS code and sector, visit https://businessdatacodes.com/naics