What's the Difference Between SIC and NAICS Codes?

SIC codes and NAICS codes are lists of business classifications. If you are completing your first business income tax form or filing an application for an SBA loan guarantee you may have seen a request for your business SIC code or NAICS code. This article explains the difference between these two codes, how to find your business code, and how to use the code for marketing your business.

What is an SIC Code?

The SIC Code (Standard Industry Classification) is the original code system used by the U.S. government to classify businesses. This code was developed in the 1930s and it hasn't been updated since 1987, so many of the codes are out of date, or they don't reflect new types of businesses. Dun & Bradstreet says that the SIC codes focus mostly on products, and it may be difficult to use this code to classify newer types of products or services.

What is a NAICS Code?

The NAICS (North American Industry Classification System) codes were developed in 1997. These codes include business processes and newer types of businesses, including service industries and technology companies. These codes are also used in NAFTA transactions between the U.S., Canada, and Mexico.

How Do SIC Codes and NAICS Codes Work?

Both the SIC codes and the NAICS codes classify in broad categories and then break down the classifications into more detailed sub-categories. For example, SIC codes 52-59 are for retail trades. Classification 54 is food stores, then 541 is grocery stores, 542 is meat and fish markets, and so on. Then within the 541 category, 541103 is convenience stores, 541106 is kosher markets, etc.

The classifications may change periodically, so keep that in mind and use the most recent version of your code.

When Are These Codes Required?

You may see either a requirement for a NAICS code on several U.S. government programs or forms:

Your Business Tax Return

For each type of business (corporation, partnership, sole proprietor, LLC), the income tax form requires you to enter a code for the "principal business activity." The "principal business activity" is defined as the activity that gives you the largest percentage of "total receipts." The IRS says "total receipts" is defined as "...the sum of gross receipts or sales (plus all other income)."

A list of the codes is on the Instructions for each business tax return. It's based on the NAICS codes.

An application for an SBA loan program

The Small Business Administration requires NAICS codes for businesses that want to participate in an SBA loan guarantee program.

An application to become a federal contractor

You can apply to become a federal government contractor in multiple NAICS codes.

You don't need a NAICS code to apply for anEmployer ID number; you just have to check a box for a general category of business type.

How Do I Find My Business In Each Code?

You can find the SIC code or NAICS code for your business by using the U.S. Commerce Department lookup tool. Once you get the main category, you will see the sub-categories listed off to the side. Keep going deeper into the category of your business, to get the specific six-digit code for your type.

You may have to keep trying different search terms to finally get to the one you think best fits your business type. You'll find better results using the NAICS code, so use it first. Then, if you need an SIC code, you can search for the equivalent. The same process works for switching from an SIC code to a NAICS code. For example, I converted the SIC code for convenience stores (541103) to the NAICS code for convenience stores (445120).

How Can I Use These Codes for Marketing?

Search for potential customers. As you can see, you can look up businesses that buy what you have to sell. Using the example above, if you want to sell to convenience stores in a specific area, you can look up businesses in your area with the 541103 SIC code.

Find specific potential customers. If you drill down on the NAICS.com website, you can see more details on a specific company, including:

• Name and title of the point of contact person
• address and phone of the company
• sales volume and number of employees, and
• its business lines, with NAICS and SIC numbers.

Find competitors. In the same way, you can look up possible competitors using your code, and do a location search.

Buy lists. You can buy lists of businesses to send information to potential customers or to do telemarketing. The advantage of using the SIC or NAICS code is that you have a very targeted list of exactly the right company to get your advertising message.

Unfortunately, the information from the NAICS reports information doesn't include email addresses, but you can look those up on the company website. But at least you have the basic information on the company so you can do your email marketing.