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CHICAGO (TheStreet) -- Your business may not be able to compete with the big guys when it comes to advertising budgets or high-rent office locations, but the right phone system can help level the playing field. It's an easy way for a small shop to create a professional, polished impression -- even if it's based in a bare-bones strip mall rather than a gleaming corporate office tower.

It's not just about fooling customers into thinking your business is larger than it is (although that's a nice benefit). A phone system that handles calls efficiently will keep customers satisfied and make employees more productive.

The basic component that sets your business apart from a one-person home office is a private branch exchange, or PBX. Once you've installed a PBX, your business has its own in-house switching station: Calls come in to a central number and are routed to the appropriate extension.

The cost savings make a PBX a no-brainer for multiperson offices. Owners avoid paying separate bills for every phone in the building and can control what kinds of calls employees make (for example, by blocking expensive long-distance charges).

A bare-bones PBX can cost as little as $100, but what features you get depends on what you pay -- and in this case, it doesn't pay to be a cheapskate. Voice mail, the ability to transfer calls between extensions and call forwarding are all necessities. If your business requires collaboration between employees in different locations (such as a central office and a warehouse), the ability to teleconference should be included as well.

While PBXs have traditionally been pieces of hardware you must pay to have installed, more and more companies are switching to hosted PBXs, which operate on a monthly service plan model. All the necessary equipment is housed at your phone company's office; you simply hook into the system using your existing phones.

Hosted PBX systems offer the same features as standard systems and are especially appealing to companies that want to minimize their tech responsibilities. Most allow the system's administrator to track usage and make changes online, which is especially appealing to companies with seasonal or temporary workers that have to change the number of phone lines in use frequently.

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Whether setting up an actual or hosted PBX, it's important to consider how the features you choose will affect customers' experience. Do you want callers to start with an automated receptionist and be directed to a list of extensions? Or do you want calls to be answered by a human being rather than a recording? If that's the case, you can designate a series of backup extensions to ring if your main number is busy.

Also think about the overall impression you want to create as customers work their way through an automated system. Do you want your company to appear bigger than it is? Then include a number of different departments in the system's directory -- even if each consists of only one person. Do you want to voice mail prompts to sound formal or folksy? Whichever you choose, make sure your employees understand your strategy and customize their voice mail accordingly.

The right phone system -- used as part of a flex-time arrangement -- can also be a tool toward greater employee satisfaction. Hosted PBXs allow companies to integrate home and cell phones into the office network, so calls can be automatically forwarded to wherever an employee happens to be working, whether it's

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or their living room. Since the call rings through from the usual work number, no one needs to know the employee isn't in the office.

Most small businesses aren't on the cutting edge of telecommunications technology -- and don't need to be. But as voice and data systems get more advanced, there's been growing interest in calls made through the Internet rather than traditional analog phones. We'll look at the pros and cons next week.

Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook and writes for The Wall Street Journal, Chicago and other national magazines.