Cutting costs is a great business practice, until it REALLY "costs" you money in the end. That's the principal risk with a small business phone system: Buy too little, and scalability will be expensive or near impossible. Spend too much on a professional telephone system, and you'll waste money if your employees don't really use all the nifty high-tech features (often times they won't).

A small business phone system for companies with more than 10 employees, or those that expect to expand soon, is a matter of budgeting over the medium term and looking for the best fit from a variety of technologies.

Points covered:

1. Basic phone system with key service unit (or "key system")

2. Moving your phone system to a full-fledged PBX

3. Hosted or virtual PBX offerings phone system

4. Web-based phone systems

*What is a decent small business phone system for most companies:

What you probably expect from a standard phone system is voicemail, a receptionist station, call transfer capabilities and expandability/scalability. For that level of requirement, you'll need what's called a key service unit or KSU small business phone system.

I recommend: The KSU is actually a small box on the wall which you'll need your phone vendor to install, along with the software to run it. See KSU telephone system vendors: Toshiba, Nortel, AT&T and Vertical (Comdial).

*When to consider a professional PBX phone system:

From 10 users to 40, small business phone system KSU units are probably rich enough in features for this size. After 40 or when connecting multiple offices, a PBX (private branch exchange) system begins to make more sense as an overall telephone system.

I recommend: A PBX replicates the level of service once provided by human operators at telco switchboards. They can can handle a great deal of incoming calls, route connections accurately and quickly, and provide many additional features, such as: automated directories of employee extensions, call parking/holding, complex conference calling and highly configurable voicemail services. Small business phone system PBX vendors include Fonality, TalkSwitch, Nortel, Cisco Systems, Avaya and 3Com.

*A middle-ground PBX solution:

Thanks to the Internet, it's now possible to acquire much of the usability of a PBX system over the Web. Rather than invest upfront in hardware, you pay a monthly fee for small business phone system features via the Internet.

I recommend: Vendors of hosted, virtual or IP PBXs such as: RingCentral, VirtualPBX, GotVmail, Freedom800, and VoiceNation.

*Consider an IP based telephone system:

If you have access to commercial grade broadband, then you can acquire the latest and greatest in small business phone services. Assuming your office is located in a fairly populated U.S. city and the building is properly wired for high capacity bandwidth services. Most buildings which have an ordinary 'telephone pole cable' attached to it, has the ability to transmit this type of service.

I recommend: An integrated access voice + data T1 or PRI. Also called a VoIP or SIP T1. It can function with standard analog telephones, or newer digital telephones. Computer "soft" phones may also be used in conjunction with an IP PBX, which is a PC software based PBX (housed in a computer server, rather than a traditional PBX hardware unit). And these systems can mimic the kind of features common to expensive PBX systems as well. Integrated T1s can offer a tremendous savings over individual POTS lines as well as a significant savings on long distance calls.