1. Business Ideas
  2. Business Plans
  3. Startup Basics
  4. Startup Funding
  5. Franchising
  6. Success Stories
  7. Entrepreneurs
  1. Sales & Marketing
  2. Finances
  3. Your Team
  4. Technology
  5. Social Media
  6. Security
  1. Get the Job
  2. Get Ahead
  3. Office Life
  4. Work-Life Balance
  5. Home Office
  1. Leadership
  2. Women in Business
  3. Managing
  4. Strategy
  5. Personal Growth
  1. HR Solutions
  2. Financial Solutions
  3. Marketing Solutions
  4. Security Solutions
  5. Retail Solutions
  6. SMB Solutions
Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.
Find a Solution Small Business Solutions

Choosing a Business Phone System: A Buyer's Guide

Choosing a Business Phone System: A Buyer's Guide
Credit: Lane V. Erickson/Shutterstock

If you're looking for a new business phone system, there are several questions you need to answer first.

1. Do you need a full phone system that includes physical office telephones, or could your business get by with a virtual phone service that relies solely on mobile devices instead of traditional office phones?

2. If you do need office telephones, what kind of service do you want? You need to choose between a traditional landline telephone service, which is  provided by a local or regional phone company, and a Voice over Internet Protocol (VoIP) system, which runs over the internet and is offered by a multitude of providers.

3. If you choose a VoIP, do you want to house the system at your business (on-premises) or have it hosted by your service provider (cloud-based)?

We will help you answer those questions, but if you already know what you need and just want to see our recommendations for the best business phone systems, visit our best picks page.

Editor’s Note: Looking for information on business phone systems? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

buyerzone widget

If you're not sure yet, read on. We'll fill you in on the pros and cons of each of the following types of phone systems:

  • Virtual phone systems
  • Landlines
  • Cloud and on-premises VoIP systems
  • Virtual phone systems work by connecting a business phone line to remote workers on their mobile or home phones.
  • These types of systems work as an extensive call-forwarding solution, wherein calls are transferred to each employee's designated phone (cell or home) when a customer or client calls the main business number.
  • These systems include a variety of features, such as automated receptionists, voicemail, call forwarding, call screening and online faxing.

Pros and cons: This type of service allows businesses with employees working from locations other than the company's office to present a professional face at all times. It also gives remote workers access to a variety of phone system features that mobile and home phones don't offer. The downside is that virtual systems aren't a full-fledged phone system. Your calls are still processed on your mobile or home phone network. This means you are charged for the call on the virtual system and use up your mobile- or home-phone minutes.

Best for: Businesses with a large group of remote workers, or sole-proprietor businesses.

  • Landlines in this instance are traditional phone systems, typically supported by a local or regional phone company.
  • Landlines, also known as public switched telephone networks (PSTNs), are analog systems that run via the telephone company's traditional copper wiring.
  • To run a landline service, you need on-premises PBX hardware. This is the hardware that's used to create multiple extensions and allow for phone system features, such as call transferring and call directories.
  • There are landline systems today that are considered a hybrid with VoIP systems. There is a traditional phone line that comes into the business that connects to a business's data network. The data network within the businesses is then used to connect each individual phone.

Pros and cons: Landline systems are a reliable, time-tested solution that many companies are comfortable using. The biggest negative of these systems is that most phone system providers are moving away from landlines, making them more difficult not only to purchase, but to repair should something break.

Best for: Large corporations that have the budget to pay for them and an in-house IT staff to run and maintain them. Also necessary for businesses without high-speed internet access.

  • Instead of the copper wires that landlines employ, VoIP phone systems use the same internet connection that a company is already using to get online.
  • VoIP systems provide features that previously only large corporations using expensive PBX hardware had access to, such as automated attendants, call queues and computer integration that allows voicemails to be sent to email inboxes and computers to be turned into "softphones."
  • VoIP systems give remote workers access to a business's phone system from their mobile device.

Pros and cons: VoIP systems provide a sophisticated phone system complete with all the bells and whistles. These systems are easily set up and configured, and are significantly cheaper than landline systems. The downside, however, is that these systems rely on your internet connection. So, if you're in a community with spotty internet service, this type of phone system wouldn't work for you. [See Related Story: VoIP for Business: Why It Makes Sense]

Best for: Small businesses that want the functionality of a sophisticated phone system at a reasonable price, and businesses that want their remote employees to have access to the phone system.

If you decide that a VoIP system will fit your needs, you now have another decision to make. While landline systems force you to house all the necessary equipment inside your business, VoIP systems give you the option to buy your equipment outright and self-host, or to rent the equipment from your service provider and have the provider house it in the cloud.

  • With an on-premises system, all the equipment, which includes the private branch exchange (PBX) hardware needed to keep the phone system running, is housed within your business.
  • On-premises systems require a large capital expenditure, as you are purchasing the equipment upfront.
  • While you pay one-time fees for all the hardware with a self-hosted system, you pay monthly fees for your SIP trunking, or PRI circuit, which is what's needed to allow calls to be made and received.
  • Your IT staff is responsible for handling maintenance, repairs and upgrades of the system.

Pros and cons: The benefit of an on-premises system is that you are always in control of your service. You are relying on yourself to ensure it is up and running and configured how you like it. The flip side, however, is that there is a significant upfront cost, since you have to buy all the equipment. Additionally, you need someone on staff who can service and maintain the system.

What the experts say: "A lot of our larger clients with need for high availability, high security and customization end up with on-premises [systems]," Beth English, founder of communications consulting firm EE & Associates and current board president of the Society of Communications Technology Consultants International, told Business News Daily. "Some large enterprise-level clients will often choose the premises-based solution because they might have the staff to support it, they need a lot of customization, or they are very concerned about privacy"

Best for: Businesses that don't feel comfortable using the cloud and want total control over their system and access to equipment at all times. Also good for businesses with an in-house IT team that can set up and maintain a VoIP system. Additionally, on-premises systems are better suited for businesses with regulatory or compliance requirements that may be difficult to meet in the cloud.

  • With cloud-based systems, there is no maintenance or hardware, other than IP phones, to worry about. The service provider houses, maintains and upgrades all of the PBX technology for you.
  • The cloud offers growing businesses the opportunity to easily add new lines and provides quick access to new features.
  • Businesses typically pay a monthly fee on a per-user basis.

Pros and cons: With cloud-based systems, there is no PBX hardware or dial-tone services to purchase and maintain. Your provider takes care of that for you. You can set up and configure the system for your business, all from your computer. The downside of a cloud-based system is that you aren't in control of the hardware. If the system goes down, you have to rely on your provider to get it fixed as quickly as possible.

What the experts say: "If a business does not have a big staff and does not have anyone to manage its system, it is a really good option to go with a hosted option," English said. "[Cloud phone solutions] get rid of the headache of having to maintain your own phone system."

Best for: Growing businesses on a fixed budget that don't have an IT staff to operate and maintain PBX hardware. Also good for businesses that want quick access to new phone system features or have multiple locations and want their system all on one platform.

Now that you know the basics, you might be ready to make some decisions. If so, check out our best picks for business phone systems.

Still not sure if you even need a business phone system, or if VoIP is a fit for you? No problem. Here are some questions and answers that may help you come to a decision.

Q: Do I need a phone system?

A: The simple answer to this question is yes. Because so much of a business's success depends on how it presents itself, all businesses can benefit from some sort of business phone system.

"We believe that no matter the size or type, every business should have the tools and solutions needed to present themselves in a professional manner while maximizing their ability to work efficiently and stay connected to customers and co-workers," Jim Gustke, vice president of marketing at Ooma, a provider of business phone systems, told Business News Daily.

Q: Can't my employees and I just use our mobile phones for business purposes?

A: It is definitely possible if you want to invest in a virtual phone system. Using a virtual phone system allows you to use your mobile device, while still presenting a professional image.

Gustke said, however, that he wouldn't advise using mobile devices without a virtual system.

"While it may be intuitive, mobile phone plans are simply not set up to offer the same business features that specifically designed business phone systems offer," Gustke said. "For example, mobile phones can't offer a virtual receptionist to answer calls and quickly and easily connect customers with the proper company contacts, or provide important business information like hours and directions."

Q. I've always had a traditional landline system. Will I be at a disadvantage if I continue using this type of system in the future?

A. The problem with landline systems isn't their functionality. They still operate at a high level. The biggest issue you will run into with traditional landline phone systems is that new options are no longer being built.

Melissa Swartz, founder of the telecommunications consulting firm Swartz Consulting, said the industry has moved away from the Time Division Multiplexing technology that is used in traditional landline systems, which has resulted in an end to research and development for these types of systems.

"No additional enhancements are coming," Swartz said. "The industry is concentrating R&D resources on VoIP, unified communications and cloud architectures."

In addition, she said no software upgrades are available. This means you won't have access to many new features and capabilities.

Finally, technical expertise on these types of legacy systems is disappearing, according to Swartz.

"Parts are still mostly available, but will be getting harder to obtain," she said.

Q: How do I know which phone system and provider are right for my business?

A: The decision really comes down to the resources you have available. You need to consider your budget, whether you are a growing business, whether you have an IT staff that is capable of running and maintaining an in-house phone system, and whether you have access to a high-speed internet connection.

When choosing a specific phone provider, Swartz said it is important to look for one that offers more than just the tools and features you want in a phone system. She said you want a system that is supported by a provider that has the technical expertise, time and resources to provide the level of support your business requires.

"Don't underestimate the importance of the support partner in your decision – make sure their company culture is compatible with yours," Swartz said.

Q. With cloud systems, is there only a monthly fee, or are there other costs I should be aware of?

A. Swartz said there can be some upfront costs associated with cloud-hosted phone systems.

"Typically, you still have to pay for the phones and gateways that reside on premise, so you don't totally avoid upfront costs unless the provider will 'rent' the phones to you," she said.

Q. With a cloud-hosted system, am I sharing a server with other businesses, or is there a server just for my business?

A. Many cloud phone system providers offer businesses the option of using a shared server or paying extra for their own dedicated server.

English said choosing whether you want a dedicated or shared server depends on if you want the system solely dedicated for you, or if you want to buy it as a service on the same platform that they provide to everyone else.

"That is a good option for someone that doesn't have a lot of special requirements or need a lot of customization," English said of shared servers. "If you are a large [organization] with complex needs, that's not going to be a good option."

Q: Is the connection on a VoIP system as good as on a landline?

A: While some users might be concerned about the quality of a VoIP system and how it sounds, the technology has come so far that it's nearly impossible to tell the difference between landline and internet-based calls.

"It's highly comparable, if not better," David Lee, vice president of platform products for RingCentral, said of VoIP connections. "A lot of carriers have switched to VoIP-based systems, and most folks can't tell the difference."

However, in order to make sure that your call quality remains clear and strong, businesses have to be diligent about how they set up their data network, according to English.

"You have to set aside a certain amount of bandwidth to ensure that that call has quality and the voice call has to take priority over your other traffic," English said.

Q: What types of features are available in a VoIP phone system?

A: While feature-rich phone systems were previously used only by large corporations, today's VoIP options give small businesses the same benefits. Here are some of the features you may find most beneficial:

  • Voicemail
  • Voicemail-to-email
  • Voicemail transcription
  • Call forwarding
  • Call recording
  • Call queues
  • The option of both local and toll-free numbers
  • Interactive Voice Response
  • Interoffice instant messaging
  • Conference calling
  • Automated attendants
  • Extension dialing
  • Ring groups
  • Directory assistance
  • Call transferring
  • Internet faxing
  • Call reports
  • Call monitoring
  • Missed call notifications
  • Integrations with popular programs, such as Microsoft Outlook, Salesforce and Google's services.

Q: Can remote employees access a business phone system?

A: VoIP technology gives employees the freedom to take and make business calls from anywhere, without the need for a business-dedicated cellphone. Business VoIP systems offer smartphone applications and mobility features that give employees the full functionality of their desk phones anytime, anywhere.

"Mobility tools sync them seamlessly to the main office, with caller ID registering each outbound call as originating from the main office," said Aaron Charlesworth, vice president of marketing and product management for VoIP service provider Vonage Business Solutions.

Q: Why should I care if my employees can access the phone system when they're out of the office?

A: These mobility features are helping employers show that their employees are always there to take care of their customers' needs. Whereas previously, employees could use their personal cellphones to speak with clients when they were away from their desk, business phone system mobility tools allow workers to be reached without having to give out their private numbers when they want to be contacted outside the office, according to Lee.

"It allows you to represent yourself with your business identity," he said.

Q. If my business has multiple locations, does it matter if I have an on-premises or a cloud-based system?

A. While both on-premises and hosted systems can support organizations with multiple locations, using a hosted solution can simplify things, English said

"If you have a lot of distributed sites and you need to talk together, it is a way to standardize and consolidate it on to one platform," she said.

Now that you know the types of phone systems available and what each one offers, you need to determine which provider is best for you. To help you narrow your choices, we would encourage you to check out our best picks for various types of businesses, as well as our complete vendor list, if our suggestions don't fit your needs. A roundup of our best picks, our reasoning for choosing each one and our thorough provider list for business phone systems can be found here, as well as on our sister site, Tom's IT Pro. You can also check out our unbiased reviews on business VoIP providers

Editor’s Note: Looking for information on business phone systems? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

buyerzone widget
Chad Brooks

Chad Brooks is a Chicago-based writer who has nearly 15 years' experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.