Sick of creating engagement letters from scratch for every new client? Create your perfect template in seven easy steps.
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You know you should be using engagement letters in your tax resolution cases, but you're just not sure what your engagement letter should look like. Or maybe you’ve finally decided to update the same old letter you’ve been using for years. Perhaps you're just fine-tuning your current letter, intent on taking it from great to flawless. Regardless, you’re in the right place to learn how to properly construct an engagement letter in seven simple steps.
The introduction of your engagement letter has two purposes—to lay out the purpose of the letter to the client, and to set the tone of the letter. The introduction doesn’t need to be complicated. Simply state that the purpose of the letter is to document key components of the engagement such as scope and pricing. In fact, it’s better if you keep the tone of the entire letter simple and to-the-point. Just because this is a legally binding document doesn’t mean it needs to read like fine print.
One of the most important functions of an engagement letter is to define the scope of the engagement.
You should be as specific as you need to be for each individual engagement, but at a minimum, your engagement letter should detail:
No matter how you choose to structure your fees, your pricing for each engagement should be clearly stated in the engagement letter. Your clients want desperately to trust you but will likely be hesitant to extend that trust initially. By detailing the fees and expenses the client can expect over the course of the engagement, you can ensure that you never—even unintentionally—break the client’s trust by springing an unexpected expense on them.
Your engagement letter should include information such as:
It’s also a good idea to include language explaining that in rare, extraordinary cases, the engagement will prove to be significantly more complicated than expected. In such cases, you can reserve the right to adjust your fees to reflect the additional time or expertise required, promising to notify the client promptly if their case will require such an adjustment.
If, for whatever reason, you and your client need to terminate your arrangement early, it’s nice to have a built-in eject button. If your firm offers a refund for any unperformed services, be sure to make the terms of the refund clear as well.
It’s impossible for us to cover every potential clause your practice might need to include your engagement letters. Consider your policies and the needs of your practice, and include language that addresses them as necessary.
If you find that certain things tend to break down in your relationship with your clients, consider building provisions that mitigate those risks into your engagement letter. For example, if you constantly have to wait for weeks for a client to respond with needed information, then build in a communications clause into your engagement letter. If you are insistent that the client defer all contact with the IRS to you and others within your practice, make that clear in the engagement letter. The engagement letter is the place to put all your expectations in writing.
There’s nothing complicated going on here, just don’t forget to leave a space for signatures and dates at the end of the document.
Once you’ve put together a great engagement letter, save it. Use it as a template for all of your future engagement letters. Adjusting the specifics of each letter should take you less than 10 minutes for each new engagement if you have a good template in place.
Even easier than using a template? Canopy's letter generator feature allows you quickly and easily generate all of the letters you use in your practice in a few clicks, including engagement letters, transmittal letters, proposals, IRS responses, and more. Save templates, reusable paragraphs, and all of your drafts on the same platform you do the rest of your tax resolution work.
Not sure you need to use engagement letters in your practice? Chances are, you do. Check out this blog post titled: 3 Reasons Engagement Letters Are Critical to Your Practice.
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