Confirm industry risk using our SIC code finder

A business will report the primary kind of economic activity it engages in to US government agencies such as the Census Bureau, Bureau of Labor Statistics, Internal Revenue Service, Social Security Administration, or Securities & Exchange Commission. These agencies will then assign the business a SIC code based on the response. So, in a sense, businesses assign SIC codes to themselves.

Yes. A business may have varied and/or complex enough operations that its economic activities can’t be described by just one SIC code (for example, a gas station that also has a convenience store and/or restaurant attached to it). There is conflicting information on how many SIC codes a US business is allowed to have; some say 5 is the limit, while others say there is no limit. However, it’s usually better for businesses to have fewer SIC codes that more accurately reflect what they make or sell.

Somewhat. The North American Industry Classification System (NAICS) was created to supersede the SIC system in 1997 for two reasons. One was to standardize how businesses are classified across the closely-connected economies of the United States, Canada, and Mexico. The other was to expand classification numbers to six digits (instead of the SIC system’s four digits) to allow for classifying more types of businesses, especially those in emerging industries (such as computers & software). Despite this, some US government agencies still use the SIC system.

In some cases, SIC codes can be matched to their modern NAICS counterparts. In other cases, NAICS codes will describe new industries not covered by the SIC system, and so they have no corresponding SIC codes.

SIC codes indicate what industry (or industries) a business is a part of. This information can contain several potential risk signals. One is that the business is involved in illegal economic activity. Another is that the business might be involved in fraud or other financial crime because an industry it’s in has a high rate of illegal activity (possibly due to inadequate regulations or enforcement thereof).

On the other hand, an industry may be known for dangerous activities and/or potential to be abused by criminals. It may, therefore, have strict regulations that would burden your organization with extra compliance costs if you tried to take on a business from that industry as a client or partner. Or there could be a reputational cost to associating with a business in a certain industry, as that industry’s activities might be under public scrutiny or incompatible with your organization’s core values.

One more example is that an industry may be going through tough times economically speaking, so there may be financial risks to onboarding a business from that industry.

“Prohibited”, in this sense, refers to industries and businesses that other companies don’t want to associate with. Sometimes, this prohibition is strictly legal in nature, as an industry or business inherently involves criminal activity. Other times, companies decide for themselves which businesses and industries are “prohibited” based on certain risk factors. These include: high likelihood of fraud or other criminal activity due to light regulations; heavy regulations, and high associated compliance costs, due to having a reputation for risk; being heavily-regulated, and thus requiring increased compliance work & spending to partner with them; economic activities that have negative social connotations and/or aren’t consistent with a company’s core values.