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Virtual Phone Systems for Small Business: The Complete Rundown

This article was updated on July 18, 2024

A cloud-based virtual phone system can transform how a small business communicates, both internally and with customers. Let’s look at how a small business virtual phone system can drive productivity, cost savings, and more.

Illustration of business employee in front of oversized laptop. They are wearing a headset. On the screen is a phone pad and an ongoing conversation.

Why Should Small Businesses Consider a Virtual Phone System?

Picture this — a small business, still using the same desk phones it’s always had. Becky, the CEO, just read an article about the impending “Death of Landlines.” Wanting to stay at the forefront of technology, she pulls her head IT person, Andres, into a meeting to discuss their small-business phone system situation.

Andres says, “Perfect timing!” and begins venting about a persistent connection issue affecting nearly half the business’s phones. After a lot of phone tag and empty callback promises from the phone company, Andres finally finds out they need to replace their phones — but their models are obsolete.

And, of course, the phone company’s suggested replacement models have a steep price tag. Becky asks, “How much is the telephone installation for these new models?” — and her stomach drops when Andres tells her the total.

But Andres tells Becky not to worry — he has an idea. “I can solve the high phone company costs, the widespread desire to work remotely, and stay current with phone system technology, all at the same time.”

“How?” asks Becky.

“Let’s get a virtual phone system.”

What Is a Virtual Business Phone System?

A virtual business phone is a phone system that is based in the cloud and runs through the internet. It allows its users to make calls from any device with a stable Wi-Fi connection. This means all of your employees can connect with others through your virtual phone system, no matter where they are.

The flexibility, functionality, and affordability of virtual phone systems makes them an ideal fit for small business communications.

How Does a Virtual Phone System Work?

Virtual phone systems normally rely on Voice over Internet Protocol (VoIP). When a call is made over a virtual network, a connection is established between the caller and the destination. Voice data is then broken up into what’s called “packets,” which allows the data to travel over the internet to the other line. When the packet data reaches the recipient, it’s changed back into voice data.

In other words, a virtual phone system works by sending communications over the internet, instead of using traditional phone lines.

Why Use a Small Business Virtual Phone System?

Getting back to Becky and Andres at our hypothetical company, Becky is immediately on board with Andres’s plan, and they make the switch. The upfront cost savings were a huge selling point, and Becky ponders what she can do with all that money saved.

Now Becky can attend conferences across the country and make quick check-in calls between presentations using her business’s virtual phone line from her cell phone. She can also call other professionals she meets from her business phone number while she’s mingling and networking, keeping her brand top of mind for those she connects with.

Andres can make business calls from his laptop as he travels around to the organization’s various offices, solving one IT problem at a time. The whole staff is so appreciative of him, as he is always there to take calls through the virtual business phone system even when he’s away from his desk.

Quinn — one of Becky’s employees who takes advantage of the new remote-working options — doesn’t need any fancy hardware or clunky telephone to make business calls from home. They simply connect their cell phone to the business’s virtual phone system through an app, and voilà … an instant business phone at home, barely any setup required.

This is the beauty of a virtual phone system for a business.

You can have all this for your small business, too. Whether your employees work in the office, from home, on the road, or on a beautiful beach halfway across the world, they can all utilize the same virtual phone system to make calls.

As you begin the hunt for an easy-to-use virtual business phone, you’ll note a few different terms are used to describe these systems. Let’s take a look at each one so you know exactly what to look for and what you’re getting.

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Virtual Phone Systems vs. Traditional Phone Systems

You’ll likely hear four common terms floating around the small business phone world: KSU and PBX (generally considered traditional systems) and VoIP and UCaaS (newer virtual phone system options).

Traditional Phone Systems

1. KSU (Key Service Utility)

KSU phone systems for businesses are old school. They are landline-based and rely on a piece of hardware mounted somewhere on-premises. Each phone line within the business must be manually connected to the KSU in order to function, and this functionality usually tops out at around 40 employees. You’ll get basic phone features like call holding, intercoms, paging, and speaker phones — but that’s about it.

Installation and maintenance can get costly, especially because these outdated systems are no longer the focus of innovators in calling technology. Businesses aren’t necessarily seeking out these phone systems — it’s more a question of, can you continue using your key phone system or do you need to update?

2.  PBX (Private Branch Exchange)

While PBX systems also require hardware in a central location of the business, their more feature-rich nature sets them apart from a key phone system. Businesses implementing these systems in the ‘60s and ‘70s could look forward to voicemail, conference calling, phone menu options (like “press 1 for so-and-so”), hold music, and much more.

PBX has evolved significantly since then, and many businesses now use internet protocol PBX (or IP-PBX), which allows users to make calls over the internet. However, just like KSU, you will still have the hefty, upfront cost of purchasing various hardware and desk phones to implement PBX and IP-PBX. And while you can have more lines with a PBX system than a key phone system, adding these requires extra equipment and extensive server space, which can slow down the growth of your business.

This leads many businesses to look for a better, more cost-effective solution — which takes us to VoIP.

Virtual Phone Systems

3. VoIP (Voice over Internet Protocol)

As its name suggests, VoIP is a technology that allows users to make calls over the internet. This is the backbone of virtual phone systems. Put simply, it works by:

  • Picking up the analog sound waves from your voice

  • Converting them into a digital wave

  • Sending that wave through the internet to its intended recipient

  • Unpacking that digital wave into its original audio form for the recipient to hear

The cool thing about a VoIP business phone system is that you aren’t limited to using it on a standard desk phone. Where traditional key phone and PBX systems require copper wiring and physical switch boxes to make calls, VoIP allows folks to make calls from laptops, smartphones, tablets, or any other internet-connected device that can download apps.

And if you still really want a desk phone, don’t worry — VoIP can work there, too. IP-PBX phones, for example, use VoIP.

4. UCaaS (Unified Communications as a Service) 

UCaaS takes VoIP technology one step further by directing all forms of business communication through a cloud-based platform, including texting, chats, video conferencing, virtual faxing, and much more. While phone calls are the top preferred method for people trying to reach businesses, the other forms of communication hold similar sway among consumers. The more branches you extend, the more connections you will make.

Unified communications for small business can drive a number of internal benefits as well. When employees are given numerous channels to efficiently communicate, you break down cross-departmental silos, promote productivity, and have an easier time aligning goals across the organization.

But let’s back up for a moment — what if all you want is a cost-effective, reliable business phone? Do the benefits of VoIP technology outweigh the costs and effort of transition? What you really want to know is whether a VoIP phone system for a small business is a worthwhile investment.

Benefits of VoIP for a Small Business

Is VoIP as good as a landline for small businesses? The short answer is, “No — it's better.” Here’s why:

1. You won’t spend an arm and leg.

The low price of VoIP services is what initially attracts most businesses, since initiating VoIP services can cost as little as $15-$40 per line, per month. Plus, you don’t have to spend money on actual phones if that’s not in your budget — your team can use their laptops, cell phones, or other office devices to make calls. And if your business makes long-distance and international calls regularly, you definitely want to consider VoIP, as these kinds of calls cost significantly less when done over the internet.

2. You get a flexible communication tool that will grow with your business.

Is it truly scalable? That’s a top-of-mind question for decision-makers shopping around for business services. It’s what has people kicking those old key phone systems to the curb in favor of VoIP technology. You won’t have to worry about housing wires or having an entire communications center dedicated to handling calls. Instead, the cloud-based nature of VoIP makes it easy to add lines and grow your business, whenever and however you like.

3. You can go with the remote workflow.

Remote work is here to stay. What began as a frantic, band-aid solution in response to the COVID-19 pandemic is now a sought-after benefit. One survey of over 2,300 remote workers found that 97% of them would continue to choose remote working for the rest of their careers. So, if you’re a small business looking to attract top talent, offering work-from-home options is the way to go. VoIP simplifies communication for remote and hybrid workers, since they can use any IP device to make calls from the same virtual business phone number. This also allows small businesses to hire remote answering services, as these services can easily connect to your business communication lines through VoIP.

4. You get access to productivity-driving features.

While you may not initially consider VoIP for all of its features, the features are what will make you stick with it. For example, with Vonage VoIP technology, you can:

  • Listen to voicemails from your phone or online account

  • Block calls with the swipe of a finger

  • Read transcribed voicemails over email

  • Text colleagues and customers from the app

  • Forward calls to any number (the caller doesn’t even have to know)

  • Offer click-to-call buttons on your website

  • Implement Interactive Voice Response (IVR) to direct callers to the right person

And that’s not even half of what you can get with VoIP calling.

5. You’ll love how easy it is.

Imagine an employee trying to handle a traditional, wired desk phone while using their computer — maybe the customer can’t hear them over the speakerphone, or perhaps the employee is still waiting for their desk phone to be set up. These seconds and minutes add up, lowering productivity and increasing frustration. Now imagine that same employee downloading an app in seconds to make a call from their computer, and also using that device to access necessary resources to make a sale, give a report, or check in with a client. This ease of use makes VoIP technology the premium choice for businesses everywhere.

So now that you’re convinced your business needs to harness the power of VoIP, how do you get started?

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What to Consider When Choosing a Virtual Business Phone System

When selecting a virtual phone system, a small business should weigh a variety of factors — the type of business; business goals; customer needs and expectations; available budget; number of employees; whether the workforce is on-site, remote, or hybrid; call volume; existing on-site telephony equipment and wiring; internet connection quality; etc.

The choice is important for the simple reason that a business phone number remains essential, even in this digital age. Several options exist for receiving and making inbound and outbound calls, with varying features, monthly costs, and more. At Vonage, we have a long history with — and a strong commitment to — VoIP technology for small businesses.

In general, small-business owners have two options when choosing a business VoIP solution: hosted or on-premises.

Hosted means that the virtual phone system is operated by a third-party vendor with offsite equipment, freeing the company from owning any software or equipment or worrying about running updates or fixing major IT issues on their own.

On-premises (or self-hosted) options require on-site equipment and sufficient IT staff and expertise to handle installation, updates, management, and more.

Virtual phone systems offer additional advantages for small businesses when you consider ease of installation and maintenance, overall operating costs, security measures like fraud detection and two-factor authentication, and the ability to expand calling features by adding a unified communications solution.

Establishing a Virtual Phone Number

As you search for the best virtual phone system for your small business, one of the first things to do is make sure the provider you choose can handle the basics, like setting up your virtual phone number with an online phone service.

But that’s fairly simple, right? Pick a 10-digit number, and you’re good to go? Well, not quite. Here are some questions to ask when you’re choosing a provider for a virtual phone number online:

1. Will they let you keep your current phone number?

Keeping your current number used to be a hassle when switching phone providers. Now it’s a basic expectation. Verify with the provider that you can transfer your landline or mobile phone number over to their service.

2. How do they prevent calls from a number’s prior user?

If you don’t have a current number you’d like to keep, then you want to make sure you get a “clean” number from your provider. Ask them how they ensure there’s no cross talk from previous users of a phone number. With proper quarantining and aging practices, this shouldn’t be an issue.

3. Do they offer local numbers in areas and countries you need to reach?

Think of your personal reaction to dialing a local number versus a toll-free number (e.g. 1-800-XXX-XXXX). There’s something about local numbers that feels trustworthy, like we’re calling someone down the street in our community. They give your business a local presence, even if you’re on the other side of the world.

How to Set Up Your Virtual Phone System

With Vonage, you can easily set up your virtual small business phone system today through our ecommerce checkout options. Here’s a general overview of what you can expect when setting up your virtual phone number.

1. Decide which features and pricing plan are right for your business (our team is happy to help you figure that out if you’re unsure).

2. Checkout through the ecommerce system. This is available for companies purchasing less than 100 lines.  

3. After purchasing, you’ll be able to create your online account, which is where you’ll have the option to set up your virtual phone number.  

4. Choose the numbers you want to use on your account, and purchase extensions for your users. Depending on your current carrier, you will likely be able to transfer your   existing phone number, or you can choose from Vonage’s available inventory of numbers. While you can search for specific local/geographic numbers, availability isn’t guaranteed. 1-800 numbers are available for an additional fee. Once you add users to the system, you are free to assign and configure your extensions and define your desired call flows.

5. Have your employees download the Vonage app onto their calling devices, or set up any compatible phone hardware you’d like to use.

6. Train your team with options like free webinars and other customer training sessions, interactive guides, or our numerous video tutorials.

Futureproof Your Business With a Virtual VoIP Phone System

And that’s it! Ready to transform your small business’s phone system with Vonage’s enterprise-grade services? Head on over to our small business communications page to get started.

Still Have Questions About Virtual Phone Systems for Small Business?

In general, a VoIP phone system can cost anywhere from $15 to $40 per month per line. Setup costs are virtually nonexistent if you use existing devices and hardware for your VoIP system. Plus, you don’t have to spend money on actual phones — your team can use their laptops, cell phones, or other office devices to make calls.

Yes, many providers can transfer your existing business cell or landline phone number over to their service.

Absolutely. VoIP simplifies communication for remote and hybrid workers, since they can use any IP device to make calls from the same virtual business phone number.

When choosing a virtual phone system for a small business, key features to look for include high call quality, the ability to seamlessly connect remote or hybrid workers, lower IT demands, plus bonus unified communications features like auto forwarding, three-way calls, call recording, virtual receptionists, click-to-dial, voicemail-to-email, and more.

Yes, VoIP phone systems can securely handle sensitive business communications, primarily because calls are transmitted over the internet as opposed to being routed through traditional phone lines. Beyond that, VoIP and UCaaS providers can also offer security features that landlines simply can’t match, such as two-factor authentication, fraud detection, compliance with standards like HIPAA, GDPR, PCI, SOC 3, and more

Contact Us

Let's connect!

Want to know more about how a virtual phone system can help a small business boost productivity, cut costs, and create a better customer experience? We’re here for you! Call us at 1-844-365-9460, or fill out this form! A dedicated specialist will show you how the right VoIP solution can:

  • Take advantage of the latest remote-work and hybrid options
  • Combine with UCaaS to enable all forms of business communication through a cloud-based platform, including texting, chats, video conferencing, and much more
  • Easily scale up or down to fit your business needs, either long-term or seasonally

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