Smart budgeting is paramount to small and mid-size businesses, but setting up the initial tech infrastructure (email, website, etc.) can cost several thousand dollars on average. Tight financial resources make such free services from Web-based email companies such as Google's Gmail, Microsoft's Hotmail and Yahoo! Mail very tempting.

Opting for free Web-based mail can help lower a company's overhead costs and they are easy to use, providing workers with the ability to call up their accounts at the office, at home, or on the road, but there are some definite limitations to the free services.

Easy access is a gift and a curse

The popularity of Blackberrys, laptops, email enabled cell phones, and other portable devices has soared because businesspeople are constantly on the go. Having a Web-based email system allows employees to access, read, and reply to messages from any browser. They can use a PC or Mac. Attaching files requires connecting a file transfer device like a burned CD or a memory stick.

Unfortunately, experts say the biggest advantage of Web-based email systems is also the biggest problem. The easy access to email messages should be a serious consideration for any business transferring banking numbers, personal histories, or other sensitive customer data.

“Web-based email systems can be accessed from any PC, and employees will be using lots of different PCs to check their office email. Public-access PCs found in Internet cafes, airports, coffee shops, and other places aren’t always very secure,” says Andy Rathbone, tech expert and author of the upcoming Upgrading and Fixing PCs for Dummies. “Somebody could have slipped a keylogger program onto the PC or be sniffing out passwords from a wireless connection. That increases the chances that somebody can grab an account password, slip into the business’s mail system and find sensitive information.”

Size is no object

Web-based services really come through on the storage end. Yahoo! offers 1 GB accounts, Hotmail has 2 GB and Gmail provides users a whopping 2.5 GB of space. Even several gigs of memory will eventually fill -- consider that, as a successful company, you may need to use the same email service over the next decade. Unfortunately, aside from forwarding emails to the new service, there is no clean-cut way to transfer archived messages. On the other hand, traditional email, with the guidance of an IT expert or department, can be transferred as necessary during your company’s growth.

Consider website packages with email included

No-cost Web-based email services are tempting, but many Internet Service Providers (ISPs) will give you a website package that includes tailored email accounts. The ISP usually uses the Web address as the root of the company emails, such as

 “Most ISPs host email and websites and they have SMB packages that aren’t very expensive,” says Gary Chen, small and medium business strategies analyst at the Yankee Group, of Boston. “There are also dedicated hosting companies that can do it dirt cheap, but one has to be careful about who you go with. Some of these outfits are very small and their reliability and long-term viability can be questioned.”

No IT department

Business owners may endlessly complain about their IT department, but at least they have one. “There is no service level guarantee like uptime, availability or backups. If something goes wrong, [it lands on you to] restore functionality and/or data,” Chen says. Experts recommend forwarding your emails to a traditional computer email account. This extra step may defeat the goal of saving money, at least important emails will be properly backed up -- something none of the major free email services do.  

“Read all agreements, licenses, terms of service, etc. carefully,” Chen says. “It’s free, so set your service level expectations accordingly.”