Our Blog

What to include in your bookkeeping engagement letter

bookkeeping engagement letter
Last Updated September 19, 2022
 - by Kathryn Yanchycki, CPA

You have a new bookkeeping client, and you're ready to get to work. But did you know that it's also essential to have a written agreement in place with your client before starting that work? This document is called an engagement letter, and it outlines the specific accounting services you will provide and all the necessary details. 

Before you provide any accounting services to a client, you and your client must agree on the terms of your engagement. The bookkeeping engagement letter will clarify the responsibilities of each party in the engagement and is critical when things don't go as planned.

This blog post will discuss what an engagement letter is, why it's essential, and the top things to include in your engagement letter. By doing so, you can be sure that both you and your client are on the same page.

What is an engagement letter?

An engagement letter is a contract to outline the service terms between the service provider and client. This document will outline what you'll do for your clients, how much you will charge, how long the work will take, how they'll pay you and other terms of the agreement. 

Engagement letters should be used by any accountant performing client work to protect themselves and establish a good business relationship based on transparency. This document ensures everyone is on the same page with what is expected and protected from potential future disputes. It's a win-win for everyone involved and a crucial part of onboarding.

Why are engagement letters important?

Engagement letters are important because they outline the expectations and responsibilities of both the bookkeeper and the client. They also help protect both parties in case of any disputes or misunderstandings, especially involving the scope of work to be completed. Many problems can be avoided if everyone is on the same page with an engagement letter from the start. Many professional liability insurance providers require engagement letters outlining service terms as they are the first line of defence in protecting yourself as a service provider. 

bookkeeping engagement letters

What to include in your bookkeeping engagement letter

Date of agreement

First and foremost, your bookkeeping engagement letter should provide the date of the agreement.

Identification of the parties

It is important to outline who the agreement is really between. If you offer your bookkeeping services under your business name, use that. What is the correct name of your client's business? Make sure you understand and document this clearly.

Intro

Briefly identify the firm, yourself and your position and correctly identify who will receive your services, whether that is an individual or a business. You may want to also give a quick company overview to showcase your value and explain the point of the engagement letter. Also, be sure to thank them for their business.

Objective

Your engagement letter should clearly outline the services you will provide, in this case, bookkeeping. 

Outline what the engagement is and when it will begin and end, and expected delivery dates of the work performed. This can be simply stating the date range of the engagement, or you can include a detailed breakdown of deadlines for both you and your client to keep the project on track.

Scope of work

To add to the objective, it is crucial to be specific in this section of the letter, so there are no misunderstandings between you and your clients. This is where you outline what you will and will not do as part of the bookkeeping services you're providing. This can help avoid any confusion or misunderstandings down the road.

For example, will you handle all bookkeeping tasks for the client or just specific ones? Will you be including extra services such as payroll? Will you provide monthly reports, or only at the end of the year? Spell it out, so there are no surprises.

List the services your firm will provide and how often you'll provide them. Be specific as possible such as how many bank and credit card accounts will be reconciled each month. If you perform one-time services, like a cleanup, specify what the completed job looks like.

This section of the engagement letter is significant and clearly defines what you will deliver and what work is not included. This will help mitigate scope creep, which is when the deliverables of a project expand from what was initially set - without allocating additional time or money. You can also add what will happen if the client requests extra services outside the scope of the current engagement. This may stem from miscommunications or the client's unreasonable expectations.

accountant

Timeline

Include the dates and length of the engagement. It is essential to renew your engagement letters regularly, preferably annually. Renewing annually gives you a chance to review your prices and if the scope needs to change. If additional services are required, this gives you a chance to allocate the proper amount of time and adjust your fees accordingly.

Your engagement letter should also include a timeline for completing the work. This helps set expectations for both you and your clients - after all, nobody wants their work dragging on forever! If there are any delays with the project, send your clients an update to know what's going on.

Fees & billing arrangements

In addition to outlining services, your engagement letter should include payment terms. This will let your clients know exactly how much they will pay for your services. 

You need to specify how much your services will cost and how they can pay you. Let your clients know if they will be billed by the hour or if you charge a fixed monthly fee, so they can plan for that. Will you send an invoice or automatically deduct the costs from a bank account? On your invoice, be sure to let the client know what happens if the invoice is not paid on time.

Make sure that you specify when each payment is due. You might decide to charge 50% upfront and 50% upon completion or break it down into monthly payments, but whatever your terms are, make sure they are apparent in the engagement letter.

If you are covering the cost of the software package, be sure to outline how much of the monthly fee is covering that.

Client responsibilities

You should also include an engagement letter section about the client's responsibilities in the engagement letter. This could include providing you with all necessary paperwork and information or letting you know of any changes that occur within the company. By having this information spelled out up front, you and your client can avoid any misunderstandings later.

Outline what information the client should provide and which tasks they are responsible for, including deadlines where applicable. It is also crucial for the client to know what happens when they do not fulfill their obligations promptly.

Content Snare allows for a clear client dashboard that outlines precisely what documentation the client needs to provide and when. It also allows clients to ask questions right in the system and sends automatic reminders for documents outstanding in helping with your engagements. Find out more about how it can help your accounting firm here.

Engagement termination

Finally, your engagement letter should include a clause that outlines how the agreement can be terminated. This is especially important if things go south with the client or decide they no longer need your services. 

This will outline how either party can end the working relationship, whether due to dissatisfaction with services provided or if one side decides they no longer need assistance. Having this in writing protects both you and your client from any unexpected surprises down the line. By having this in place, you protect yourself from any legal troubles in the future.

Outline what happens if you and the client part ways. It's essential to have an agreement up front on what that looks like if that happens. What happens to any software subscriptions purchased in your agreement, and what happens to the client's documents and bookkeeping already completed? How much time and effort will you put into working with their new bookkeeping firm to help with the transition?

There may be a time it may be necessary for the accounting firm to withdraw from the engagement. This section of the letter should outline the conditions that might lead to this, such as conflict of interest, management ethics or integrity or the accountant's actual or apparent lack of independence, and the procedures that will be followed, such as the return of client files and final billing.

Acceptance of terms & signatures

signing of contract

As a legal document, it is vital that the client agrees with the terms outlined in the engagement letter and you get the client's signature before the engagement.

Putting all of this information into a written agreement is essential for you and your clients. It helps to ensure that everyone is on the same page, and it can help avoid any misunderstandings or disputes down the road. By taking the time to create an engagement letter, you're setting yourself and your business up for success!

Engagement letter templates

You will save a ton of time creating engagement letters for clients if you have a template prepared for bookkeeping engagements that can be customized. Sample engagement letters for each type of service you offer will save your team tons of time.

Ignition has great engagement letter templates to customize for your clients. You just need to enter your client details, pick your engagement letter template and click send!

Once you've drafted up your bookkeeping engagement letter or customized an engagement letter template, you should consult a legal professional in your area to review it and to have your questions answered. This investment will pay for itself in the future for any dispute resolution you may have to deal with.

Engagement letters are legally binding agreements, but keep in mind that this post is for information only. It does not and is not intended to constitute legal advice. All information regarding engagement letters is for general informational purposes only.

Now you have a good idea of the top things to include in your bookkeeping engagement letter. By taking care of all these details up front, you can ensure that you and your client have a positive experience.

Simplify client onboarding with Content Snare

Organized document collection without the back and forth emails. Content Snare is like a checklist for your clients with automatic reminders.

Start your trial here

Leave a Reply

Your email address will not be published.

Kathryn Yanchycki, CPA

Kathryn is a Chartered Professional Accountant with over 7 years of experience in both public practice and industry accounting. She has had the opportunity to work with a wide variety of individuals and companies, which gives her a unique perspective on what it takes to be successful in the industry. Kathryn loves all things business and productivity and has been able to combine her love for creating content into writing for accounting firms looking to improve their businesses.

lockcrossmenuchevron-uparrow-right