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Jul 19, 2021 2 min read

3 Reasons Engagement Letters are Critical to Your Practice

Having an engagement letter (a legally binding document) in place from the onset of a case will lend security to both you and your client.

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3 Reasons Engagement Letters are Critical to Your Practice

Engagement letters are the foundation of the legal relationship between tax professionals and their clients. They are letters that, once signed by both you and your client, constitute a legally binding contract between you (or your practice) and the client. As such, every time you take on a new client, that relationship should begin with an engagement letter for three big reasons: 

1. Engagement letters are legally binding

Having a legally binding document in place from the outset of a case will lend security to you and the client. In the (hopefully rare) case of a dispute between your practice and a client, the engagement letter can be the go-to document to resolve the dispute.

 

2. Engagement letters set expectations

If your client is going through a tumultuous time, they will be desperate for you to offer them some predictability. Clients want to see specific language regarding pricing, the scope of your services, and how any changes to the agreement might occur. Knowing what to expect from the outset can give these clients the confidence they need to move forward.
An engagement letter is the ideal place for the accounting professional to spell out any expectations. These may include the necessity of prompt communication and the need for the client to be diligently compliant with their taxes and forthcoming about all of their finances while their case is open.

 

3. Engagement letters prevent misunderstandings

Your relationship with the client will often begin with verbal agreement. You may not even consider it an agreement formally, but you say things the client may take as promises or agreements throughout a consultation.


Engagement letters take much of the guesswork out of your relationship with the client. After you put an agreement on paper and ask your client to read and sign it, no one has to try to remember exactly how much you quoted them in the consultation. The fee is in the engagement letter. The client doesn’t need to be surprised when you quote them an additional fee to represent them in an appeal or other additional services. You can refer them to the engagement letter (which has language explaining exactly what service they are paying for).

engagement letters guessworkEven better, if the engagement letter is effective and worded well, the likelihood of these kinds of misunderstandings ever arising is significantly reduced.

 


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