Typically, accountants use engagement letters, but they can benefit any small business service owner because they're essentially contracts in the form of a letter. This can make the legalities of entering into a business relationship less intimidating, especially if you work with other small businesses. Follow these steps to write a strong engagement letter.
- Skill level:
Provide an introduction by stating that this is an engagement letter and its purpose is to spell out the agreement between you and your client. Identify who everyone is, i.e., "I, Bill Smith, a certified public accountant in the State of New York, am proposing to complete the following project for Acme Widget Makers."
Define the scope of the services you're providing. Make it clear to your client what you will and won't do based on the discussion(s) you've had. Consider using a bulleted list of tasks so it's absolutely clear exactly what the project involves.
Include the time period covering the project. You may want to highlight the due date in red so everyone's clear by what date the work is supposed to be completed. Discuss what happens to the fee if you're late with the project without gaining prior approval from your client.
Move on to the money section of the engagement letter. Be very specific about how you bill. Give your hourly rate and spell out how you're going to notify the client of progress. Highlight in red the project cost if you charge a flat rate.
Talk about mediation policies if you feel it's appropriate. You should also mention industry-specific issues. A CPA, for instance, may want to mention the services he will not provide on the project if it deviates from his standard tax preparation protocol.
End your letter with signature lines for you and your client. Write your personal name and the name of your contact underneath two lines side by side. Then write "for" and make two more lines where you type the company names underneath. Also include lines for the date of signature.
Write engagement letter templates for various business situations. You could classify them by client, project or service package.
Tips and warnings
- Write your late payment policies in a separate paragraph in your engagement letter so it stands out.
- Always sign two copies of the engagement letter and include a self-addressed, stamped envelope for the client to send one copy back to you with his signature.
- Keep a third copy of the engagement letter in your file while you're waiting for the signed copy to be returned.
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