VoIP, or Voice over Internet Protocol, will probably sound like perplexing IT jargon to some owners of small businesses. However, the term VoIP is becoming an increasingly analysed topic among the business and IT press alike.

According to research carried out by Silicon.com, 60 per cent of UK small and medium-sized businesses considered investing in VoIP in 2007. In terms of planned investment, it only lags behind laptop and handheld computers.

So what exactly is this technology and why all the fuss? More importantly, what does it mean to small firms and how can it be of any benefit?

Although still a relatively new business technology hosted VoIP has well outgrown its infancy and businesses are actually starting to embrace it, having recognised the advantages over traditional PBX phone systems.

For those uninitiated in the terminology, hosted VoIP is the routing of voice conversations over the internet through any IP-based network. Unlike a traditional phone system which requires a PBX service in your office, hosted VoIP is a managed telephone solution whereby each line is connected to your provider’s switch.

Rapid uptake seems to be prevalent amongst the small business sector as these are the companies that benefit most from the cost savings on telephone calls, due primarily to the tight margins they work to. Inclarity estimates that the number of small business customers switching from traditional telephony to VoIP has rocketed by 200% in the first 6 months of 2007.

Aside from the cost savings, the functionalities of VoIP offer small firms the flexibility and ease-of-management far beyond traditional phone systems.  For example, many owners of start-ups have multi-faceted roles. The MD of a one-man recruitment company will spend much of their day out of the office visiting new business prospects, candidates, accountants and bank managers.

With a hosted VoIP telephone, calls can easily be re-directed to a mobile phone or home phone using software on their computer, enabling them to maintain the switchboard. With this function employers can also offer staff the option to work from home, supporting the demand for flexible working and creating an appealing working environment for new recruits.

Clearly, there is a huge opportunity for small firms to enhance their business by embracing cost efficient technologies such as VoIP. Once owners decide to make the transition from old to new, they’re certain to reap the benefits.

Dave Millett is operations director or communications firm Inclarity