Business Classification Systems Key Terms

Know the classification systems key terms that impact your business

By Michele Vrouvas

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.

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.
Try: 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.
Try: 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.
Try: 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.
Try: 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.
Try: 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.
Try: 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.