Business classification systems offer a standardized method of classifying businesses into industrial groups that allows the United States Census Bureau to collect, present and analyze data for statistical purposes. Businesses in the agricultural, construction, communications, wholesale trade and public administration are just a few of the business sectors receiving an industry code.

The business classification index, which started in 1937, consisted of four digits and referred to as the Standard Industrial Classification or SIC Code. In 1997, the classification of businesses became more detailed and expanded into 6 digits and was renamed the North American Industry Classification System or NAICS to allow statisticians to analyze economic activity for Canada, United States and Mexico. Making the most of business classification systems requires one to understand what each digit designates. Digits 1 and 2 refer to the largest business sector, digit 3 refers to the subsector, digit 4 the industry group, digit 5 the industry and digit 6, the national industry.

Making the most of business classification systems also requires actively using NAICS Codes in a variety of applications such as:

1. Converting SIC Codes to NAICS Codes

2. Obtaining government contracts

3. Determining whether government regulations apply to a business

Action Steps
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Convert SIC Codes to the NAICS industry classification system to aid you in data analysis

Convert Standard Industrial Classification (SIC) industry codes to the North American Industry Classification System (NAICS) to have the ability to present and analyze current and historical data provided by the United States Census Bureau.

I recommend: Conversion tools presented by Logistics World and the United States Census Bureau allow the conversion of SIC Codes to NAICS Codes and NAICS Codes to SIC Codes as some government agencies are still utilizing SIC Codes in their classification of business operations.

Research and obtain government contracts by querying postings using a NAICS or SIC Code

Government agencies can post contract information by its business classification systems code. Reduce the time spent searching contract postings by querying on the business classification systems code.

I recommend: Register as a Federal Contractor and become eligible to bid on government contracts such as those found on Federal Business Opportunities that provides an easy to use search tool allowing one to query business opportunities using the NAICS Code.

Use business classification systems to determine whether you must meet government regulations

Government agencies, particularly the Environmental Protection Agency, have regulations and policies in effect which specific businesses and industries must comply with. Industry classification systems specify those businesses and industries targeted by a particular program to help eliminate confusion and clear any gray areas.

I recommend: Review the business classification list posted on the Environmental Protection Agency (EPA) website to see if any regulations affect your business sector. One regulation that affects many businesses for which they must obtain permitting for is the National Pollutant Discharge Elimination System (NPDES). Contact the National Stormwater Center for permitting assistance.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  When classifying a business, you may find there may be one or more business classification codes that apply and you cannot decide which one to select as a primary code. The general rule for these circumstances is to select the business classification code that generates the most revenue.

Business classification systems are pertinent for specific sectors of business such as marketing and development teams and certain public relations endeavors. Finding the right business classification is also a necessary part of forming a business and fitting it into current industry classification systems.

There are various services that promise to demystify classification codes and claim to provide an adequate and thorough listing of the most current and updated NAICS classification system standards. It is important to access the proper classification information that fits well into your business sector and that will best suit your business needs. Whether you're a startup business or an established corporation doing market research, getting the right industry codes is vitally important. When learning about business classification systems and industry codes, you should:

1. Access standard NAICS and SIC industry classification codes through government documents.

2. Get the right business code manual for your specific business needs.

3. Stay updated on business code regulation changes and keep your industry classification current.

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Gain access to NAICS codes for further research or industry classification

NAICS (North American Industry Classification System) codes are a great resource for business owners who are actively seeking solicitation to other businesses for funding or other support. Narrow market research to those businesses which will provide the highest possibility to meet your businesses needs.

I recommend: The Census Bureau has the nuts and bolts of the NAICS system and will yield bare bones results for narrowing down business sector focus. If you are trying to focus on small businesses, or you are a small business searching for your business code, the Small Business Administration is the place to go for definition on what constitutes a small business, and offers great information on classifying a business according to size.

Secure the right industry code information for your business

Finding the right code booklet or manual for your business needs really depends upon the status of your business. New businesses will need to not only register their business in order to obtain the right coding but also to be claimed under U.S. census laws. Established businesses will often find business code booklets to be instrumental in market research. Some independent firms will even help to research specific business codes for a small fee.

I recommend: Standard and Poor's does independent research for business searching for business code information for market research purposes. For those business deep in market data or financial forecasting in need of business code information they are the place to go. In addition, Hoover's offers a quick look up option for easy access as well as full service databases for more in depth research. The OSHA website offers quick reference for SIC (Standard Industrial Classification) codes.

Keep up-to-date with current industry classification lists

Every so often, NAICS codes shift to reflect changing markets. It is crucial for businesses to stay updated on the changing NAICS codes. This can be achieved best through staying connected directly to the NAIC and Census bureau either through direct contact or through the monitoring of an outside firm to help you keep your NAIC and SIC codes up to date.

I recommend: The NAICS website offers the best information for NAICS code changes. There are various products for purchase such as code change reference guides as well as the full NAICS manual in both electronic and hardcopy form. NPD is a reputable and forthright market research firm that understands that the classification of business isn't as easy as it seems and offers services that cater to the changing SIC and NAICS codes.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The Census bureau uses your NAICS and SIC codes to track earnings so staying updated on the latest codes is a necessary move for human resource departments.

Undertake your own business classification systems education and training program in order to secure a market research position with the government or any prominent business research organization. Classifying industries is not a skill that you can learn overnight. However, a wide array of Internet sources can help you learn about the guiding principles of this practice. You can then build on that with formal course work and continued study of professional manuals.

Not only should those aspiring to positions as market researchers learn the business code. It's also essential for any employee responsible keeping tabs on duties the government imposes on its products and on overseeing a company's international trade. Use online sources to find the business classification systems education and training program that works for you.

1. Learn the principles of and theories behind business classification.

2. Try online webinars to learn professionals’ methods for the classification of business.

3. Collect manuals you can use as reference material when classifying a business.

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Do background research on the development of the business classification system

Learn how business data is collected, what criteria apply to certain industries and basic economic concepts behind business codes. Also, find out why the government uses a certain business code to identify particular industries and how this translates into market forecasting.

I recommend: The U.S. Census Bureau website provides historical documents explaining what criteria determine an industry's classification. Read the Small Business Administration "Size Standards" to understand how they classify small businesses.

Learn the basics of industry classification when you sign up for seminars and online webinars

You'll do best with seminars and formal course work to learn the fundamentals of industry classification systems, such as international trade and the data that governments use when they want to impose duties on goods destined for the global market.

I recommend: Claritas offers a seminar and formal training on targeting businesses. You'll also learn how to analyze demographic data, business survey results and how to interface data with analysis. International Business Training provides easily accessible webinars related to business code fundamentals and best practices for industry classification.

Get ready access to professional manuals focusing on the classification of businesses

Manuals are the handy reference tools providing you with indexes, graphs, charts and other essential business data relied upon by business classifiers.

I recommend: The Library of Congress publishes a series of manuals that serve as guides to industry sources and, in particular, the Standard Industrial Classification Code. Order hard copies or electronic versions of the industry classification manuals put out by the NAICS Association, which developed alongside the Standard Industrial Classification Code.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Classifying businesses is an essential skill for any company that seeks to maintain a competitive edge in the international trade market.

With governmental regulation of businesses in the United States, American business owners are staying informed of governmental policy that impacts industry. One such policy is the government’s business classification systems, which are intended to help the government collect and analyze data on American industries. The government uses the data to report on the current state of the economy and to make economic forecasts that businesses rely on to set their goals. Here’s an overview of key terms that further describe business classification systems.

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The Standard Industrial Classification (SIC) Code

The federal government assigns a Standard Industrial Classification (SIC) Code to businesses in order to designate the organization's chief function. These codes consist of four numbers. The government uses the code to collect and analyze data on businesses in the country.

I recommend: Go to Logistics World to learn the business activities covered by the Standard Industrial Classification (SIC) Code.

North American Industry Classification System

The United States also relies on the NAICS, also known as the North American Industry Classification System. This system categorizes organizations, again based on their primary business functions, so that the government can more easily gather and report information that it uses to understand the country's economic climate.

I recommend: The U.S. Census Bureau offers a short history of the NAICS and identifies the organizations contributing to its development. Check out the official NAICS Manual for detailed definitions of American industries.

Small vendor classification systems

The small vendor classification systems contain definitions for small businesses. These include businesses with a limited number of employees and businesses owned by women, minorities and disadvantaged groups.

I recommend: McKesson explains each small vendor classification definition in more detail. It also gives statistics on the ownership interest in small businesses that women, minorities and disadvantaged groups have.

Business possibilities

The federal government's business classification system identifies business possibilities you might want to check out before jumping into a business venture. These possibilities are identified as business models and reading the different descriptions can help you make a choice that fits your goals and financial resources.

I recommend: Check out Small Business Notes’ description of how the government classifies businesses. It also directs you to resources for learning more about business possibilities.

Service Disabled Veteran-Owned Small Business (SDVOSB)

One of the business classifications created by the federal government is the Service Disabled Veteran-Owned Small Business, also known as the SDVOSB. In order to gain this classification, a private sector business must chiefly be owned by veterans disabled during military service. A publicly owned business receives this designation when most of its stock is owned by service-disabled veterans.

I recommend: Read what United Technologies has to say about the benefits of the SDVOSB designation. You’ll get the links to the federal statutes further defining the classification.

Small disadvantaged business concern

The Small Disadvantaged Business Concern is another business classification designation that covers small vendors whose owners come from minority or disadvantaged groups.

I recommend: Northrop Grumman breaks down the small disadvantaged business concern group into subparts explaining its certification, how its ownership can change while retaining this designation and the net worth limits for its principals.