A Clear & Simple Bookkeeping Engagement Letter – Template

Starting a new business relationship is much like entering a romantic relationship. You have boundless optimism, a sense the relationship will go on forever, and feelings of the same vision for the future. What could possibly go wrong? 

If you enter into a relationship (professional or otherwise) with mismatched expectations between you and the other party, it’s a recipe for disaster. That’s why an engagement letter is a crucial piece of any new bookkeeping project. The letter spells out the expectations, timeframes, and scope of work included so all parties are on the same page. 

Whether you’re working with a single client or dozens, it’s important to protect yourself and your client by getting everything in writing from the outset.

What is a Bookkeeping Engagement Letter?

A bookkeeping engagement letter sets the tone and scope of the bookkeeping project. The letter should outline all services that are included in the scope of work. Services included in the scope of work should be well-defined in as thorough of terms as possible.

The bookkeeping engagement letter should include a timeline for the work included along with who is responsible for meeting each milestone. As the bookkeeper, the deadlines should be contingent on receiving access to the client’s information and accounting system. For the client, the timelines should include reasonable turnaround times for the finished project once the information has been provided.

Along with the scope and timeline, compensation should be clearly defined in the letter. Compensation can be based on milestones, regular retainers, or hourly rates. The final structure of the compensation will be the result of a negotiation between the bookkeeper and the client.

 

Why Sending a Letter at The Beginning of Each Engagement is Important

Once the bookkeeper has commenced work, it’s often too late to try to define the scope of the project. By establishing boundaries prior to the engagement, each party knows the full scope of the relationship and potential cost. In addition, each party has been given the opportunity to walk away while knowing the full picture. 

After an engagement has started, it can quickly become a very uncomfortable situation to explain that the expectations are different from reality. There are numerous reasons why an engagement letter should be in place prior to starting any bookkeeping engagement:

1. Prevent scope creep

You’ve likely encountered a situation where the client just needs one more thing.

Maybe they want you to bill a client for them “just this once.” Maybe they have an additional credit card account which doesn’t have much activity (at least during the first month). Maybe they just have “a quick question.”

While each of these items is relatively small and doesn’t take a lot of additional time, you need to consider the long-term implications for how much additional time it will take you each month or year. By defining which services are included from the outset, you give yourself a contractual out for respectfully saying “no” to work outside the scope of your project.

2. Define billing

No one wants to get into a billing dispute with a client. It leaves a bad taste in everyone’s mouth, whether you’re the client who feels like they’re being overcharged or the bookkeeper who feels like they’re being cheated out of well-earned compensation.

A proper engagement letter will outline when the client will be billed, payment terms, and even how much additional services will cost. The cost for additional services (since you won’t know what they are until you’re asked to do them) are often billed at normal hourly rates. The hourly rates should be included in the contract as well.

3. Establish who is responsible for out-of-pocket expenses

Occasionally there is additional software, platform subscriptions, or other expenses which may crop up in an engagement. The engagement letter should include wording for who is responsible for these additional expenses.

If you’re rebilling for services such as QuickBooks online or another accounting system, the passthrough of the billing (with or without a service fee, depending on your pricing structure) should be included in the engagement letter.

4. Set expectations for responsibilities

Let’s say you notice a check cleared the bank for the wrong amount. You’ve brought this to the attention of the client who says you are responsible for calling the bank to resolve the matter (assuming the bank will talk to you as an authorized representative).

You believe the client is ultimately responsible for handling matters directly with their bank. Though you can’t cover every possible situation in your engagement letter, outlining who is responsible for dealing with third-parties should be included. Other examples of responsibilities which should be defined include gathering statements, interacting with the client’s CPA, and handling financial matters.

5. Provides liability protection

Being sued by a bookkeeping client is fairly rare. However, in the event a client sues you for non-performance, having an engagement letter can help you make your case. As long as you have delivered the services outlined in your engagement letter, you’ll have a strong argument.

What Your Bookkeeping Engagement Letter Should Include

Though each firm has its own style of engagement letters, there are several important pieces of information that should be included: 

Both parties’ names

This one might seem obvious, but if you’re starting with a template, make sure you update the template to include both parties’ names and addresses. This is especially important if the engagement goes awry and you need to prove you had a valid contract in court.

Billing practices

As noted above, there are many valid ways to bill a client. The important thing is to define your billing practices in advance. Each service can be included as a separate line item or all the services can be lumped together under a single charge. Hourly rates for different professionals should be included, if relevant.

Services included

This should detail all services included in the bookkeeping engagement. Generally, services will include some or all of the following:

• Reconciliation, including a list of accounts to be reconciled
• Payroll
• Accounts payable
• Account receivable
• Sales tax filing
• Income tax filing
• Additional consulting services

Withdrawal provisions

Engagement letters should include a provision for how the contract can be ended by either party. This may include clauses such as requiring 30 days notice from either party to terminate the agreement or a statement clarifying the contract can be terminated by either party without notice.

Limitations of liability

This section usually includes a statement such as “all bookkeeping work is prepared based on the information provided by the client” or something similar that limits the bookkeeper’s liability for information withheld by the client. Though a bookkeeper cannot avoid liability for negligent work, this language can help if the contract ends under less than ideal circumstances.

Confidentiality agreement

This part of the engagement letter is included to protect the client and assure them you want to maintain the confidentiality of their books and finances. Though this part does not directly benefit the bookkeeper, it’s important to state you intend to protect the client’s data. If you use subcontractors, this should also be mentioned here.

A Free Bookkeeping Engagement Letter Template

We’ve designed a bookkeeping engagement letter template below, which you can use as a starting point. This example is for illustration purposes only. You should always consult a legal professional before finalizing your letter.

October 1, 2021

ABC Consulting

123 Main Street

Anytown, MD 10010

Dear [Client Name]:

We are excited about the opportunity to serve you in your new business endeavor. Knowing your bookkeeping is in good hands is an important step in ensuring the success of your business. 

This letter is to confirm our mutual understanding of the terms of our engagement to provide bookkeeping services for your firm.

We will provide monthly bookkeeping services which consist of:

• Importing all bank activity for your two checking accounts, three credit cards, and loan.
• Classifying all transactions according to your business needs.
• Reconciling banks and credit cards each month.
• Grossing up payroll transactions.
• Answering questions regarding accounting posed by your CPA or tax preparer.

All monthly bookkeeping services will be completed by the 15th of the month.

Additionally, we will provide weekly bookkeeping services consisting of:

• Processing accounts payable including entering all bills, reviewing outstanding liabilities, and processing agreed upon payments for your vendors.
• Processing accounts receivable including sending out invoices and statements as needed. Additionally, we will follow up monthly with your clients who have outstanding balances.

All weekly bookkeeping services will be completed by Wednesday each week unless there is a holiday, in which case all services will be completed by Thursday.

The monthly fee for our services outlined above will be $x,xxx.

Additional consulting services outside of the scope of the items listed above will be billed at our normal hourly rate. Our hourly rates are as follows:

• Administrative staff: $xx/hour
• Bookkeeping staff: $xx/hour
• Owner: $xx/hour

This engagement will be in place until either party cancels the agreement through written communication with 30 days notice.

Our responsibility in this engagement consists of completing the bookkeeping activities outlined above with care and due diligence. All communication from your firm will be answered within 48 hours. 

Your responsibility for this engagement includes providing access to your accounting system and providing the necessary documentation and information necessary to complete bookkeeping. 

While we stand behind our professional judgment and experience, this does not override your own business judgment. We are also not responsible for changes to your books made by yourself or your staff.

Our work consists of recording keeping, and we do not provide any auditing or fraud detection. We are also not responsible for delays caused by delays in receiving information from your firm.

We look forward to working with you.

Sincerely,

________________________________

Owner, ABC Bookkeeping

Accepted by:

________________________________

[Client Name]

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