So you’re needing to write an engagement letter. But you have no idea how to do it, or maybe you may want to learn to write one better.
An engagement letter is a crucial part of running a service-based business, especially in the field of accounting. Not only is it a legally binding way to ensure you’re protecting your assets and best interests as a business, it eases the communication process between you and your clients.
Below, we go through the best reasons to issue and sign engagement letters, how to write a more effective engagement letter, and what outcomes you can expect when you write an engagement letter correctly.
As a bonus, we go through the steps you can take to streamline your engagement letter writing and issuing process. Sometimes writing the letter is half the battle. Then it’s a matter of hunting down your client for their signature. Unless you have the tools in place that help make it otherwise. More on that below.
Why have an engagement letter?
Why do you want to have an engagement letter out of all things? Well, an engagement letter ensures you’re setting expectations for all parties involved. While it isn’t exactly the same as a contract, it’s still a legally enforceable document.That is, an engagement letter is legally binding. This means it’s a piece of paperwork that should be drafted with the utmost caution for optimal results. Click To Tweet
The engagement letter usually outlines the relationship between a business – in our case that would be our accounting practice – and the client.
Once both consenting parties sign the engagement letter, then that’s when the letter officially becomes legally binding. An engagement letter usually outlines the involvement of both parties. For example the scope of an accounting project, what fees will be incurred for work done, and what responsibilities will be managed.
An engagement letter reduces any miscommunication or misunderstandings between you and your customers. This way, you’re taking the steps necessary to set clear expectations without needing to go to a hard contract just yet.
Something else engagement letters help keep you from is scope creep. Too often, clients want to add more to your plate. A revision here, some extra work there, a note on changing two things here. In the end, all of that can add up to where offering your services is no longer net positive or eats at your margins.
Setting firm boundaries through which you can navigate the client relationship will help keep your projects within the scope of what was first agreed upon. Do this with every client you onboard and you should have a better process in place to start working together. But not before putting the elements in place to make it a reality.
A good engagement letter contains a few key elements that, when included correctly and thoroughly, make for a strong document that is legally binding. Here are a few worth noting:
A good engagement letter doesn’t beat around the bush. In other words, it makes clear what each section is designed for and what expectations are to be met. The more specific you can be in an engagement letter with personal information, dates, and numbers, the better off every party involved will be.
This makes for less communication problems that can lead to trouble.
Clients can often withdraw from an agreement for a seemingly infinite number of reasons. The trick is to ensure you’re ready in case of that happening.
What happens if the client withdraws? What happens if the service provider withdraws? Withdrawal provisions are necessary in case of dissatisfaction with the work being done or plans changing last minute.
If you hit a point where you no longer want to work together before the work is finalized, you can refer back to your withdrawal provisions to use them as the set of guidelines through which you cut ties with each other amicably.
How much will the client be billed? How often will the client be billed? What can they expect to be billed and how?
All of these pieces of information are crucial to form a complete engagement letter. Maybe fee structure is yet another factor to think about here. Are there tiers to your services? If the client happens to want extra revisions or work done are there any additional fees they should be aware of?
Period of engagement
How long will you be doing business together? Will your services be recurring? If so, what are the dates your services will be offered and what can clients expect during that period?
Clear identification of both parties
While easier, this is a crucial part of a well-rounded engagement letter. You need your client’s complete contact information, including name, address, and phone number.
The clear identification of both parties strengthens the engagement letter’s legally binding effect. The more information you can include that specifies identification, the better.
Listing responsibilities for each party involved is helpful. But a specific point you should pay extra attention to is what the client needs to provide you with so you can do your best work and offer stellar service.
Without these sorts of stipulations in your engagement letter you risk mismanaging clients in case a dispute is brought up.
What are the outcomes?
The outcome of a well written engagement letter? You’ll protect yourself from any financial issues whenever you start doing business with a new client.
Businesses can never take things too far when it comes to taking the measures necessary to ensure that it’s as protected as possible. Any legally binding protective document in which you outline the needs of both the client and your business will help ensure dissatisfied customers, potential legal action, or poorly executed services.
The upside of issuing engagement letters is seemingly endless. That’s why they should be an integral part of how you run your accounting business. However, this paperwork can get time consuming. That’s why, once you have an engagement letter process in place, you want to streamline it. In our case, we’d recommend streamlining your engagement letter writing process with software.
Need extra help crafting your engagement letter? Download “An Accountant’s Guide to Crafting a Rock-Solid Engagement Letter” here to access the checklist.
Manage engagement letters with ImagineTime
All in all, engagement letters are a part of doing business that simply can’t be ignored. Putting in the initial effort to write a thorough and effective engagement letter can mark the difference between having to deal with unrealistic client expectations or engaging in clear communication throughout the duration of your time doing business together.
One of the best ways to deal with creating and issuing engagement letters is to streamline the process by digitizing. When once upon a time you had to chase down prospective customers so they could sign their corresponding paperwork, now you can do it all seamlessly online.
ImagineTime is equipped with e-signature features, secure data protection features to ensure the safety of your client’s data, and even a client portal so clients can submit paperwork on their own time, receive updates, and access things like their engagement letters whenever they want from the comfort of their home.
Request a demo here and learn how ImagineTime can make the engagement letter writing process a breeze.