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 services, you and your client must agree on the terms of your engagement. The bookkeeping engagement letter will clarify the responsibilities of each party, set clear expectations, and make sure you’re protected if things don’t go to plan.
In this blog post, we’ll show you the ins and outs of writing an engagement letter along with our ready-made template that you can copy and edit as needed.
Let’s dive in!
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
- Most importantly, what's not in scope
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 professional liability insurance providers require engagement letters, including the Tax Practitioners Board. In the event of a dispute, this is your first line of defense.
What to include in your bookkeeping engagement letter
1. Date of agreement
First and foremost, your bookkeeping engagement letter should provide the date of the agreement.
2. 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.
3. 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 also want to 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.
4. Objective
Your engagement letter should clearly outline the services you will provide, in this case, bookkeeping, payroll, or any related service.
Outline what the engagement is, 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.
5. 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 as 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.
6. 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.
7. 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.
8. 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.
| Pro tip: Manage client responsibilities with Content Snare Content Snare is a data-gathering tool that outlines precisely what documentation the client needs to provide and when. Our platform automatically reminds your clients to fill out onboarding forms or upload the necessary documents, and it also enables them to ask questions right in the system to ask for help if needed. Find out more about how Content Snare can help your accounting firm here. Related: How Content Snare helped Northwest Accountancy gather client info more efficiently |
9. Engagement termination
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?
- 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 when 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.
10. Acceptance of terms & signatures
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!
An editable engagement letter template
A customizable engagement letter template will help you save a ton of time in the client onboarding process. We wrote an engagement letter template based on the tips provided above, so you can copy and customize it to match your bookkeeping projects. Here it is:
Bookkeeping engagement letter
[Your Business Name]
[Your Business Address]
[City, State, Zip Code]
[Date]
[Client’s Business Name]
[Client’s Business Address]
[City, State, Zip Code]
Dear [Client's Name],
Thank you for choosing [Your Business Name] to provide bookkeeping services. We are pleased to have the opportunity to work with you. This engagement letter outlines the terms of our agreement and the services we will provide.
This agreement is between [Your Business Name] ("Bookkeeper") and [Client’s Business Name] ("Client"). Our services will begin on [Start Date] and are expected to continue until [End Date] or until terminated by either party as outlined below.
Services
Bookkeeper will provide the following services:
- Monthly reconciliation of up to [number] bank and credit card accounts.
- Preparation of monthly financial statements.
- Payroll processing for up to [number] employees.
- Preparation and filing of sales tax returns.
Services not included in this engagement:
- Income tax preparation.
- Financial auditing.
- Legal advice.
If additional services are required outside the scope of this engagement, they will be provided at our standard hourly rate of [$X per hour].
This engagement covers the period from [Start Date] to [End Date]. Engagement letters are renewed annually. Any changes in scope or fees will be discussed and agreed upon at the time of renewal.
Fees & Billing Arrangements
Our fees for the services outlined above are [$X per month]. You will be billed on the [Date] of each month. Payment is due within [number] days of the invoice date. Payments can be made via [payment method].
Late payments will incur a fee of [$X] for each [number] days past the due date.
Client Responsibilities
To ensure the timely and accurate completion of our services, you agree to provide the following:
- All necessary financial documents and access to relevant accounts.
- Prompt notification of any changes in your business that may affect our services.
Failure to provide the required information may result in delays or additional fees.
Engagement Termination
This agreement may be terminated by either party with [number] days' written notice. In the event of termination, any outstanding fees for services rendered will be due immediately. We will return all client documents and assist in the transition to a new bookkeeper as necessary.
This agreement may also be terminated if conflicts of interest arise, if there are issues with management ethics or integrity, or if we are unable to maintain our independence.
By signing below, you acknowledge that you have read, understand, and agree to the terms outlined in this engagement letter.
Bookkeeper’s name
__________________
Bookkeeper’s signature
__________________
Client’s name
__________________
Client’s signature
__________________
Ask a lawyer to review the document
This article and our template can serve as a good starting point for bookkeeping firms and accountants, but they are not intended to constitute legal advice.
That’s why we encourage you to consult a legal professional in your area to review the final version of your engagement letter 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.
