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Generally NAICS codes are six-digit numbers of information that describe a business' service and product offerings.

Why are NAICS codes important?

NAICS codes help businesses identify categories for their procurement. If you are looking for employment under NAICS code 111219 but you grow potatoes it becomes an obvious issue for many reasons. If possible, you need an ICS number of 110211 (potato farm). Even if it seems ridiculous, the examples illustrate how vital it is that the code is detailed. There may be code closer to your specialty that you can't find. Classifying business establishments is especially important to federal statistical agencies who gather statistical data in order to segment the business economy for taxes or federal programs. Naics code based segmentation is a key component to the united states government strategy for providing aid to small business. To better classify business industry, the census had to create a standard industrial classification taxonomy, based in common national industry. The self assigned system gives businesses a chance to self label according to a standard industrial classification. Statistical agencies, such as the Census, use naics to track business activity. Other industries that are less common also use naics, but are often misclassified and marginalized because they don't fit into naics. An example of a business that won't fit into naics is cannabis. This is because the total number of cannabis businesses has not met the required amount by the census office, or any other federal office to create an official industry link in the taxonomy. Management at these federal offices often overlooks industries that deal in avant garde industries such as cannabis industries and crypto industries because their business activity is still being understood. Another example of why a business might not fit the naics taxonomy is they are less developed.

Other important features of NAICS codes.

Size standards matter

Understanding NAICS code business size is crucial. The Small Businesses Administration (SBA), developed standardized sizes for NAICS categories in 2010. These are used to determine what companies qualify as Small Businesses or “Other than Small”. Standard size can be measured by calculating how many workers a company has and estimating the average annual “received by a company’. Annual earnings defined under FAR19.101 are the gross income the company generates based on various factors such as sales, interest rates, rent fees or commissions.

Multiple locations

Companies who registered more than a single business location in one registration should choose one of the NAICS codes indicating the principal business activities of the multiple offices considered in one. A business that registers each site in their individual locations can use NAICS codes reflecting the principal operations of a registered site.

Selecting your NAICS code

Choose the NAICS code that corresponds to your major business activities. Typically, your principal business activities describe your business model. Generally, your work produces your greatest income and that should reflect your naics code. Note your main business activity could differ significantly from the activity which will require registration as a sales taxes vendor.

Some examples include:

A dentist offers toothbrushes to customers. Dental practices registered for sale tax are taxable personal health products, but they must use the NAICS code corresponding to the dental practice.

A restaurant that sells alcohol. The restaurant might also include the naics code for bar (722410), as well as the naics code for restaurant (722511). It's often necessary to include 2 naics codes, in order to fully give context to business establishments. The corresponding naics codes for restaurants often correlate with secondary codes for drinking places according to Relativity6 publishing statistical data related to multiple naics codes.

It's difficult to classify businesses with more than one product or service offering, especially when they are in search of insurance or to get a loan. In those cases they must provide additional information and context. Government data is a lacking when it comes to these multiple industry cases.  

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Jonathan Ringvald

CPO, Relativity6

Jonathan Ringvald is the Chief Product Officer (CPO) of Relativity6, a data science and artificial intelligence company based in Boston, Massachusetts. With over 15 years of experience in product management and development, Ringvald has a proven track record of leading successful product teams and delivering innovative solutions that drive business growth