The Dos and Don’ts of Engagement Letters – Our Guide (And 2 Mistakes To Avoid)
Author: Financial Cents
In this article
Engagement letters are often thought to be a tedious and time-consuming task, but ultimately it is what will help set your client’s expectations for work to be delivered and reduce scope creep from particular clients. Once you’re able to outline your responsibilities and fee structures with a professional engagement letter, you can add credibility to your firm’s processes.
Resource: Free Bookkeeping Engagement Letter Template.
Because an engagement letter is a critical step when taking on a new client, we’ve decided to discuss the dos and don’ts of writing your very own letter. Take this as an opportunity to maintain your firm’s professional client relationships and build legitimacy as a reputable service for accountancy solutions. That way, you and your team can be the leading accounting firm of choice in your chosen industry and continue to enjoy financial success!
Your Checklist of Must-Do’s for Engagement Letter Writing
Consider the following details as to-do’s when preparing your letters for each client:
- Always state your firm’s purpose for engagement, its limits, and your client’s duties
- Indicate known adverse situations and polarizing conditions that can affect your engagement
- Highlight any important dates, fees, and deliverables
- Affix your firm’s record retention agreement, a stop-work clause, and late payment penalties to protect legal accountabilities
- Expound on the engagement’s limitations, particularly the financial statement distribution and liability clauses
- Discuss the appropriate alternatives for dispute resolution and warnings related to ineffective internal controls.
- If your firm is writing an updated version of the document, you may use an engagement letter template. However, change all the necessary information (e.g., change in terms, dates, payment adjustments) for seamless accountability between both parties and to avoid miscommunication
- Request for the client’s acknowledgment of the engagement through signature (both handwritten or digital are acceptable)
Additional Best Practices for Engagement Letter Writing and Management
To maintain professionalism and good client relationships, stick to these best practices:
- Look into the possibility of investing in accounting technology solutions, like cloud-based accounting workflow software, for effective client management and consistent accountability among your firm and clients
- Use the formal style of writing, meaning no abbreviations and acronyms as an added courtesy to your client
- Always do second and third checks before submitting any engagement letters to avoid costly mistakes that can lead to strained client relationships.
- You can avoid these mistakes by using a free accounting and bookkeeping engagement letter template.
Common Mistakes to Avoid When Writing an Engagement Letter
Watch out for these common engagement letter writing mistakes:
Mistake #1: Using generic, vague terms
Due to most firms’ overwhelming daily workload, accountants may use all-encompassing language, a big no-no with engagement letters. That’s because you want clarity and accountability among your team members and your clients. That’s why you should use straightforward terms, such as test, examine, and notice. Avoid any absolutes and superlatives as these words can be interpreted as unprofessional and inappropriate, especially in the accounting industry.
Mistake #2: Using your engagement letter as a marketing tool
Although there may be pressure to acquire many clients for your firm, you should never see engagement letters as avenues for sending out promotional information and other marketing opportunities. Remember to keep your letter’s the general professionalism and focus on sustaining client relationships rather than getting more. After all, both are silent features of a thriving accounting firm!
Writing engagement letters is no easy feat, especially for up-and-coming, top-cut accounting firms. Fortunately, you now have a better understanding of what to look for and the things to avoid. All you have to do is take action by accessing the best tools possible. Bolster your accounting firm’s workflow capabilities today!
Are you looking for engagement letter templates and other accounting technology solutions to increase your firm’s client success rate through enhanced productivity? We at Financial Cents can provide you with that. We can offer you the best cloud-based accounting tools, like workflow management templates, to help you carry out your engagement letter needs. Claim your free trial and explore effective solutions to boost your firm’s reputable presence and client acquisitions!
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