Updated on: July 19th, 2024

NAICS Codes for LLCs (Full Explanation) – How To Get The Right One For Your LLC?

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Small company entrepreneurs have a lot on their plates, with a variety of daily duties and long-term ambitions that need their full focus. However, there is one resource that can be simply utilized and will help your company in a variety of ways: the North American Industry Classification System (NAICS) code.

The procedure of obtaining a NAICS code is quick and uncomplicated, and it may help a company qualify for government contracts, fuel sales, marketing activities, and more.

What Do NAICS Codes Mean?

The NAICS is a coding system for classifying firms by industry. The federal government of North America created this six-digit business NAICS code category, which is pronounced NAKES (like “snakes”). The partnership, which included the US, Canada, and Mexico, began in 1997, with improvements and upgrades to the classification system occurring every five years. (The most recent update was in 2017.)

The new categorization system substantially superseded the 1937-established Standard Industrial Classification (SIC). The NAICS system was created to accommodate new industries and economic types of production that did not exist prior to the 1980s. One example is shown below, which demonstrates the rise of the digital industry and its economic contributions.

Another motive for NAICS was to expand the economic picture and data collection network to include all of North America, particularly in reaction to the advent of NAFT (North American Free Trade Agreement).

Significant Distinctions Between the NAICS and SIC Classification Systems

The US government continues to utilize NAICS and SIC codes to categorize enterprises for the purposes of accumulating, analyzing, and disseminating statistical data on the US commercial economy. Though NAICS is the more well-known of the two systems, SIC codes are still in use today, despite the fact that they haven’t been updated in almost 40 years and don’t 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, and other related fields are not represented in this older system, which was designed to cover more traditional manufacturing-based industries rather than service-based businesses.

Differences Between NAICS and SIC

North American Industry Classification System (NAICS)

  • The United States, Canada, and Mexico worked together to create a unified standard that applies to all three countries.
  • The federal government uses it for statistics and data collection.
  • Every five years, the coding system is updated to guarantee precise alignment with the economy and changes to industries, as well as to add new industries and sectors to the code system.
  • The broad economic sector is represented by a six-digit code. The specific industry is followed by the subsector.
  • Developed to strengthen SIC’s reasoning and to deliver more precise and information about a business sector. When it comes to economic production and productivity, the NAIC also provides a sharper picture. especially when it comes to enterprises that didn’t exist before 1987.

Standard Industrial Classification (SIC)

  • Designed exclusively for and by the United States
  • Used to identify a company’s core business.
  • Since 1987, the codes have not been modified.
  • The first two digits indicate to the principal industry group (or key line of business), while the next two digits refer to the business group and industry.
  • From the 1930s through the late 1980s, it focuses on industry and symbolizes economic production.

Is a NAICS Code Required for Your Company?

You are not needed to have a NAICS code unless you are a government contractor. (We’ll get to government contractors later.) If your organization, whether it’s a Limited-Liability Company (LLC) or another for-profit entity, doesn’t compete on government contracts and instead focuses on the private sector, getting your NAICS code has a number of other benefits.

Having a NAICS number for your firm would be a smart — if not terrific — step, even though “need” is a strong term. Let’s take a deeper look by breaking this down and looking at a few major reasons for your organization to get a NAICS code.

States That Require NAICS Codes

In the majority of U.S. states having a NAICS code is optional, but it is required to have NAICS in:
AlaskaArkansasConnecticutMississippiGeorgiaLouisianaNew Hampshire, and New Mexico.

The Advantages of Using an NAICS Code

1. Government Contracts

The first advantage is that it aligns more closely with companies seeking government contracts. A NAICS code is required to participate in government initiatives. If you want job from the federal government, there’s no way around it. In reality, having an NAICS code category for your organization is the only way to get in the door, bid on projects, and receive contracts.

This may apply to a wide range of businesses, including those in the construction, engineering, and technology sectors. By gathering relevant business information, the government may classify your firm and identify your industry, sector, and key outputs by using your NAICS code.

2. Programs of Grants and Incentive

Having a NAICS will also let you participate in incentive programs, such as grants. Make sure to check out 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 an example of when a firm might profit from having a NAICS code. This program allows qualifying companies to save up to 45 percent on their energy bills. To satisfy the requirements, you’ll need a NAICS code before you can submit the application.

3. Exemptions and Tax Credits

You can apply for credits and exemptions that are specific to your sector, depending on your business. Deductions for farming and agriculture, manufacturing, employee training and retention, and research and development, to name a few, are all possible. To start your search and establish eligibility, go to your state’s department of taxation and finance’s website.

4. Loan Clearance

When running a small business, having access to funds is crucial. Small company entrepreneurs will want capital to satisfy their demands, whether they are purchasing new equipment, upgrading existing equipment, or growing their product range. When it comes to small company loan consideration and approval, many banks and commercial lenders employ NAICS numbers.

When compared to other firms in your sector, having the correct NAICS code allocated to your company offers a lender a better picture of the risks. This also helps to eliminate errors that might result in a loan denial.

5. Market research and marketing

Many businesses utilize NAICS numbers to categorize their providers, partners, and consumers. This enables a company to have a better grasp of its sector and accumulate data and statistics that can be used to measure the market, target new consumers, and stay current with trends. This research may be used to not just target clients and possibilities, but also to keep an eye on the competitors.

Where Can I Look for My NAICS Code?

After reading over the primary benefits of having a NAICS code for your firm, it should be evident that getting one is a good idea that can benefit your company whether it’s an LLC, C Corp, or S Corp.) It’s crucial to note, however, that no one issues you a NAICS code.

You can find all NAICS codes on NAICS and SIC Association website.

The system is self-assigned, and you are responsible for it. The good news is that the procedure is simple and can be completed at any moment; however, the sooner you begin, the sooner you can reap the benefits of having a code associated with your company. To begin:

  • Determine which code or codes best describe your principal company.
  • If your firm has various key outputs (items and services), you can have multiple codes as long as they accurately describe your company and you are actively conducting business.
  • Go to the US Census Bureau’s website to discover the proper NAICS code for your firm.
  • Type “NAICS code” into the search box at the top of the screen to get to the right page where you can begin your code search.
  • Enter the term that best describes your company (examples: food, construction, advertising, publishing, transportation, etc.).
  • Three text boxes will appear on the page to help you narrow down your search. They progress from general industry to more specialized industries.
  • Consider the following scenario: If you were a health food company that mostly packed and sold salads, you would most likely begin your search with the term “food” or “health food.”

Fortunately, the system will provide you with a choice of possibilities from which to choose. Choose the one that best matches your main output. The greatest choice, in this case, is “Health food, fresh fruits, and vegetables, merchant wholesalers,” because we are a health food firm that creates and sells salads.

The page will scroll down to a list of corresponding firms that fit your company when you click the matching code of 424480. The code for Fresh Salads XYZ would be 424480, with the entry “salads, prepackages, merchant wholesalers” being the associated entry.

Growing Your Business Using NAICS

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

You may utilize NAICS codes to collect data and launch a focused marketing campaign if you’re a business owner seeking for strategies to locate the right clients for your product or service. NAICS data may help you find the right consumer based on their location (geography), company size (number of workers), yearly revenue, and other identifying qualities and data points.

The same data collecting process that you used to locate partners, providers, and consumers can be utilized to research your competitors and determine the trends and future of your industry.

Example – Using NAIC Codes to Create a Niche Market (4-Steps)

Let’s look at an example of how to develop a niche market and launch consumer outreach and advertising campaigns using the NAICS categorization system. Let’s return to our health food firm, Fresh Salads XYZ, which packages and sells salads; we’ve previously established how to discover your NAICS code, which is the self-assigned number of 424480. Let’s look at how you may get started and build your business by locating potential clients who will stock your goods in their stores.

Step 1: To determine your NAICS code, go to the US Census Bureau website and follow the methods outlined above.

Step 2: When it comes to getting the data you need, you have a few alternatives. Using the NAICS business lookup tool is one option. Reference USA can be used to access another database. You want to discover potential salad purchasers because you’re a seller of nutritious salads. The next step is to locate a retailer. Among the NAICS search options are:

  • 445110 – Grocery Stores
  • 445240 – Delicatessens (except grocery stores, and restaurants)
  • 492210 – Restaurant meals order and delivery services (i.e., independent order and delivery services)
  • 722511 – Family restaurants, full service
  • 722513 – Carryout restaurants

Step 3: Once you identify other businesses that relate to your product, you can then proceed with finding the restaurants, delicatessens and grocery stores in your areas that can become potential customers.

Sites and services like the NAICS Association and Reference USA offer custom searches by business type, geography, size, sales, etc. Using the NAICS code, state and city information, you can view data related to potential clients, vendors, partners or competitors.

Step 4: Create business profiles and contact lists to compile your research and organize your findings. The NAICS Association can also help you obtain data more quickly by supplying you with industry-specific listings. Before you sign up for a subscription, the business offers 50 free sample records as a trial.

By targeting the proper clientele via research, telemarketing, email, social networking, and other types of outreaches, you may develop your business and save time.

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FAQ: NAICS Codes for LLCs

Is an NAICS code assigned to me?

No. The NAICS numbers are issued by the company itself.

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