(disclaimer: this is not legal advice consult with a licensed professional)

The Journal of Accountancy reports that the dollar amount of claims increases from 19% to 71% for businesses that do not use engagement letters. Can you afford to see customer claims rank between $200 and $700 on a $1,000 contract?

Small business owners usually agree the fewer claims, the better, resulting in the need to understand the purpose, importance, general contents, delivery methods, and template abilities of bookkeeping engagement letters.

Whether you are a bookkeeper looking to improve the engagement letters you send to clients or are a current customer attempting to understand what a letter of engagement entails for your business, SynkBooks is here to walk you through all the details you need to know.

What is a Letter of Engagement?

An engagement letter is a contract between two parties that outlines key information about the scope of upcoming work and billing arrangements. Any accountant or bookkeeper providing work to a client should establish a letter of engagement to reduce confusion and give added lawsuit protection throughout the process.

Bookkeeping engagement letters are on the list of bookkeeping best practices for small business owners providing different services to customers. Additionally, a letter of engagement can range from simple to complex, depending on the services you are offering. As a result, your bookkeeping engagement letter may differ for each customer you work with.

Why is an Engagement Letter Important?

Reduce Confusion

The main reason bookkeepers issue an engagement letter is to reduce confusion surrounding the terms of the arrangement. In fact, the National Association of State Boards of Accountancy states that most, if not all, of complaints filed against accountants result from communication breakdowns.

When both parties understand what to expect, there will be fewer misunderstandings between you and your clients. This increases professionalism, client satisfaction, and promotes future working relationships.

Lawsuit Protection

There’s no doubt that you are bound to encounter bad clients at some point. An engagement letter is a legally binding contract between you and your clients. Once you have held up your end of the deal, the work, your clients are obligated to fulfill their duties and remit the agreed-upon fees.

Client nonpayment not only causes headaches, but they can also impact your business’s financial health. A letter of engagement mitigates this risk, giving you the tools needed to pursue legal action. Navigating small business legal questions when they pop up can be tricky, making it important to put safeguards in place before work starts. 

Encouraged by Accounting Boards

The legal and communication aspects are great; however, many accounting boards encourage the use of engagement letters. The AICPA Code Section 210 outlines the required terms of engagement letters that should be implemented in all services performed.

Although you may not be performing an audit, national and state accountancy board standards are applicable to all individuals working in the accounting field, including bookkeepers. Establishing an engagement letter early on gives your business a foundation to grow on when the services expand into regulated areas.

What Should Be Included on a Bookkeeping Engagement Letter?

Agreement Date

The first item you should incorporate when understanding how to write an engagement letter is an agreement date. This is usually the date you will be delivering the letter to the client.

Party Identification

Next, your engagement letter should identify both parties involved. Identification of your business will generally be at the top of the letter in the header, while identification of your client will remain in the addressee section. Oftentimes the addressee is the manager or owner; nevertheless, the company name and address should also be included.

Keep in mind that you want to use your client’s legal name in the event a lawsuit does arise. Many businesses have parent companies or operate under a different name, making it important to ask your client what their legal name is.

Your Business’s Information

The first paragraph on a bookkeeping engagement letter will discuss essential information about your business. This includes who you commonly serve, any accreditations, and why you are the right choice. Accreditations such as QuickBooks certifications and state licenses add credibility to your business.

Moreover, you want to intertwine a statement thanking the client for their business. The goal of the introduction is to tell key details about yourself, but not explain your entire business. Keep this paragraph short and concise.

Purpose of Letter

Your engagement letter should clearly state the purpose of the services, which will be bookkeeping. Give a brief outline of the services you are offering to the client with a tentative timeline. This does not need to include exact dates or services performed as that will be discussed in the work scope and timeline sections.

Work Scope

The body of your letter of engagement will outline the different services you are proposing to the client. Don’t try to cram everything into one or two large paragraphs. Instead, set up a separate paragraph and header for each service. The clearer you are with what each service entails, the less confusion there will be once work begins.

For example, if you are engaging with a client to perform monthly reconciliations, list how many bank accounts or credit cards you will be reconciling. Clients frequently open new accounts and with no transparent agreement in place, you may be adding extra work without being compensated.

Also consider which work is specifically excluded from your duties, ensuring the client is not expecting any additional work not outlined in the agreement. This is essential for small business bookkeepers who are providing minimal services to clients. Make a bookkeeping checklist for your client for full comprehension on the services you are agreeing to.

Work Timeline

Equally as important as the scope of work is the work timeline. Outline when you expect the work to be completed. For recurring engagements, give a general idea, such as the first week of the month. When your work timeline changes, be sure you effectively communicate with your clients.

Billing Structure

Your billing structure lets your clients know how they will be billed and for what amounts. Specify if you charge an overall fee per service or on an hourly basis. Many bookkeepers choose to work on a per hour basis since the extent of procedures is usually unknown until work begins.

Additionally, lay out your accepted payment methods and due dates. For example, do you accept checks? What about electronic payments? How long do clients have to pay their bill? These are all important questions to answer in your letter of engagement.

Termination Agreements

A crucial component of understanding how to write an engagement letter is termination agreements. Since a bookkeeping engagement letter is a binding agreement for both parties, you want to be sure you have options to end the contract.

Common termination clauses include dissatisfaction, no longer a need for service, and unethical acts by the client. Having termination agreements in the engagement letters lets both parties know what the next steps are, reducing any surprises.

Signature Lines

Signatures from both parties are needed to create a binding agreement. When your client signs, they are stating that they understand and agree to all terms within the bookkeeping engagement letter.

How Should I Send a Bookkeeping Engagement Letter?

In-Person Delivery

The most common delivery method for bookkeeping engagement letters is in-person. Meeting with your clients on different occasions leads to strong relationships. Additionally, in-person delivery reduces the risk of security breaches.

Secured Email

Meeting in-person is not ideal for many small bookkeeping businesses, especially virtual ones. As a result, sending engagement letters through secured email is another viable delivery method. Be sure you are using an encryption software or password protect the document to safeguard the information.

Priority Mail

When secured email and in-person delivery don’t work for your business, priority mail is an option. You want to upgrade to priority mail when sending bookkeeping engagement letters through the mail. This gives your business a tracking number, ensuring that the client is the recipient of the information.

Sample Engagement Letter Template

With our tips in mind, here’s a sample engagement letter for hiring bookkeepers.

Engagement Letter

Company Name

Company Address

Date

Contact Information

 

Dear XX, 

Thank you for choosing XX to complete your bookkeeping needs. We have been in business over XX years proudly serving our customers. The following information will outline the scope of services we are to provide to you along with proposed terms and conditions. 

Our Understanding of Your Responsibilities

We understand that (describe the situation, clients duties, and final output). We expect you to provide us with all the applicable information in a timely and accurate manner. 

Project Terms

Our fee is (outline all terms associated with the project including work timeline and billing). This is an estimate of our fees based on the services outlined in this agreement. Amounts charged are subject to change based on the issues that arise during the course of our work. 

Scope of Services

Our firm has been engaged to provide the following services. (outline each service your business will provide, including general duties associated with each)

Miscellaneous Information

The agreement between our business and XX is subject to change at any time, including voluntary termination. (include termination agreements for both parties)

Signatures

Both parties need to sign the agreement

 

 

 

Where Can I Find an Engagement Agreement Template?

Piecing together your own bookkeeping engagement letter template can be overwhelming, which is why there are plenty of resources available online to ease this burden. One engagement agreement template available for download is through eForms. Keep in mind you will need to adjust the accounting engagement letter sample to fit your business needs.

Once you develop your own bookkeeping engagement letter template or tweak an existing downloadable version, retain a copy for future use. Utilizing the same engagement agreement template helps your clients understand what to expect and builds brand image. 

Summary

The purpose, importance, guidelines, and available resources of bookkeeping engagement letters are critical components to understand as a business owner. Not only can a strong letter of engagement reduce the liability risk in your business, but clients also enjoy clear communication and guidelines.

The team at SynkBooks understands that growing your bookkeeping business is no easy task. We get it. We’ve been there too, which is why we offer our bookkeeping services to small businesses. Passing your own bookkeeping burden off to an expert gives you the time needed to focus on your own client development. Reach out today to learn more.


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