How to Determine your Primary NAICS Code

What is a NAICS code?

A NAICS code is a series of numbers (up to six digits) that establishes a specific business activity by the Federal Government.

Your primary NAICS code is the six digit code that represents the largest segment of your business’s revenues earned within its most recently completed fiscal year.

How can I determine what my primary NAICS Code is?

You can use the search feature at www.census.gov/naics. Within the “2007 NAICS Search” box, enter a keyword that describes the services provided by your business. A list of primary business activities containing that keyword and the corresponding NAICS codes will appear. Choose the one that most closely corresponds to your primary business activity, or refine your search to obtain other choices.

The following are two examples:

1. If you are a business in which your largest segment of revenue earned in its most recently completed fiscal year was as a software developer, your primary six digit NAICS code would be 541511.

2. If you are a business in which your largest segment of revenue earned in its most recently completed fiscal year was in commercial construction, your primary six digit NAICS code would be 236220.

What is the purpose of establishing a primary NAICS within my 8(a) Application?

1. It represents to the SBA what your primary business activity is (e.g. what your business does). It is important to note, that your supporting documentation such as the copies of contracts/invoices showing the scope of work performed will backup your establishment of your primary NAICS code.

2. Once you establish your primary NAICS code, the SBA will review your last two years of contracts and taxes to determine if you have earned the largest segment of your revenues within this NAICS code and if the revenues are deemed to be sufficient to meet the two years in business requirement. If you have not earned the largest segment of revenues within your primary NAICS code for two consecutive years, you will not meet the potential for success criteria established by the SBA unless you seek a two year waiver.

3. Finally, it establishes your SBA size standard limit. You must be classified as a small business concern to participate within the 8(a) Program. You can view more information on size standards at www.sba.gov/content/guide-size-standards

Can you have more than one primary NAICS code?

No. You can only have one primary NAICS code. However, you can multiple secondary NAICS codes listed within your SAM (System for Award Management) or DSBS (Dynamic Small Business Search) profile.

For more information on the SBA 8(a) Program, visit cloveer.com

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How does the SBA determine if an 8a applicant business concern is defined as a Small Business?

The 8a applicant business concern must define their primary North American Industry Classification System (NAICS) code with the 8a Application paperwork. The primary NAICS code is the six digit code in which the business concern earned its largest segment of annual receipts or total income, in the most recently completed fiscal or taxable year.

For example, a business concern that earned its largest segment of total income engaged in commercial or institutional building construction would have a primary NAICS code of 236220.

To begin determining if the business concern is defined as a Small Business, the SBA will lookup the size standard for the NAICS code.

For example, the size standard threshold for NAICS code 236220 is $33.5M.

The SBA will then add the amounts reported on the business concerns “Gross Receipts or Sales” line of their business tax return for the last three taxable years and determine its three year total income.

Finally, the SBA will take the three year total income and divide this amount by three to determine its three year average total income.  The three year average income amount is the amount used to determine if the business concern is below the size standard threshold for their primary NAICS code.

In our example, if the business concern’s three year average income is less than $33.5M, the business concern will be classified by the SBA as a “Small Business”.

*Important*

When the SBA examines the size of the business concern they will look for any possible issues involving affiliation. Affiliation arises when the business concern controls another firm or another firm controls the business concern. It can also arise when one individual has the power to control both the business concern and another firm (e.g. this individual owns more than one firm) or there are identical or substantially identical business or economic interests, such as family members, persons with common investments or firms that are economically dependent through contractual or other relationships. The SBA will also consider ownership, management, previous relationships with or ties to another firm, and contractual relationships in determining whether affiliation exists.

If you suspect that you may possibly have an affiliation with another firm, contact Cloveer for further assistance.