How to Save Your Tax Practice 100s of Hours by Streamlining Client Engagement Letters (With a Case Study)

Free Planning Tool: Download this sample tax client engagement letter template to help onboard new clients, and add clarity to your client renewal process

Table of Contents:

1. Why Your Tax Practice Should Send Engagement Letters
2. Common Pain Points with Tax Practice Engagement Letters
3. 3 Tips To Streamline Tax Client Engagement Letters
4. How to Save Over 100 Hours Per Year on Client Engagement Letters
5. Case Study: Saving 180+ Hours Per Year With Harness Concierge

Why Your Tax Practice Should Send Engagement Letters

Sending engagement letters can be time-consuming, but they have two big benefits for tax practices. 

Benefit 1: Engagement Letters Create a Better Client Experience

Engagement letters provide clients with clear expectations at the beginning of their relationship with you or at the start of each tax season. They are part of a holistic tax client communications plan. Engagement letters can be especially helpful with new clients you have never worked with before to help them gain clarity about what services they will receive and what is expected of them as clients.

Benefit 2: Engagement Letters Can Help Manage Risk

First, engagement letters set a clear scope of work, which reduces the chance that you take on work without amending your agreement with the client to increase payment. This reduces the risk of scope creep across all of your client relationships, ensuring your client relationships remain profitable.

Second, engagement letters help mitigate the risk of personal liability claims. According to the AICPA, “Engagement letters are one of the best defensive tools a CPA can possess. In fact, in the event of a dispute, one of the first documents requested is the engagement letter.” 

But still, many tax practices don’t use an engagement letter to protect their firm at all. The Journal of Accountancy reported that 53% of tax claims asserted in 2021 against CPA firms in the AICPA Professional Liability Insurance Program had no engagement letter for the corresponding service. That’s nearly half of the firms failing to mitigate their risk through a client engagement letter.

Common Pain Points with Tax Practice Engagement Letters

It’s not uncommon for engagement letters for new clients and client renewals to be considered a burden for tax firms. If not managed effectively, two main pain points exist:

1. Engagement letters require administrative work: Many times, a CPA or Enrolled Agent at a tax practice ends up doing administrative tasks for engagement letters for new and returning clients. Generally, this is a lower dollar-per-hour task, including completing engagement letter templates, sending the letter via email, and sending invoices and billing instructions. Although important, these tasks can take away from a CPA’s or Enrolled Agent’s ability to put their expertise to work directly serving clients.
2. Engagement letters can be time-consuming: The entire process, from writing to sending an engagement letter, is time-consuming. Additionally, a potentially huge resource drain is the time it takes to follow up with clients, answer their questions, and ensure clients stay on schedule for information gathering and e-signatures.

As a result of these engagement letter pain points, many firms simply skip sending them annually or at all. 

When it comes to client renewals each year, at Harness we see two schools of thought among tax practices sending engagement letters. Half of the tax firms assume clients will work with them and skip the engagement letter, often keeping their fees the same as the year before, leaving money on the table. The other half sends an engagement letter to prepare the client for the coming year.

Many of the firms that do send engagement letters seem to have one thing in common as Harness’s Director of Business Development Lena Allouche explains, “It’s common for the firms that send engagement letters to be the firms that are offering comprehensive tax planning services, not just tax returns. An engagement letter helps explain the scope of the planning services.”

In addition to explaining the scope of work, a key aspect of sending engagement letters is using it as an opportunity to reprice your services. Every year, your firm should be looking to increase fees to remain profitable. Plus, if your tax firm expands the scope of work with a client or you begin providing a greater level of tax expertise, an engagement letter ensures that you can increase prices accordingly. Engagement letters are an opportunity to make sure your tax practice is compensated fairly for the value you provide clients.

If your firm is looking to expand by providing more comprehensive tax planning services, it’s another reason to consider sending engagement letters if your firm is not already.

3 Tips To Streamline Tax Client Engagement Letters

For tax firms looking to improve their engagement letter process, we recommend three tips::

1. Create a Template: Use a template to explain the terms and objectives of your engagement with a client and to clarify the nature and extent of the tax services your firm will provide. Having a consistent template that is also customizable saves you time.
2. Leverage Technology: Once you have your template, use technology such as a tax client portal, email software, and e-signature software to send engagement letters. At every step of the way use technology to streamline or automate the process.
3. Create a Repeatable Process: Engagement letters will need to be sent for all new clients and annually for returning clients. Implement a single process with the appropriate staff managing the work.

At the end of the day, effective client engagement letters balance process optimization and client communication to deliver value for your firm and your client.

How to Save Over 100 Hours Per Year on Client Engagement Letters

At Harness, we offer modern tax practice management software and provide administrative support to help tax firms save time and focus on high-value client work. 

With this approach, Harness’s automated technology creates and sends annual engagement letters at scale, with the Harness Concierge team managing the process for all tax practices on the Harness tax practice management platform. The combination of our automated tech and in-house Concierge team takes manual work off your plate to help your firm serve clients and grow. 

By leveraging our automated tech and Concierge team’s time to handle some of your administrative work, it’s possible to save hours per client each year. It’s not unrealistic for our Harness to save tax practices over 100 hours or more per year, especially as your client base grows.

Case Study: Saving 180+ Hours Per Year With Harness Concierge

Nick Chertock, CPA, is a tax advisor on the Harness platform. He‘s based out of the San Francisco Bay Area and works with high-net-worth families with experience working with technology executives who have complex equity compensation situations.

Nick’s firm has around 150 clients which includes a single trustee with about 50 annual tax returns for him, and he’s currently adding about 10 clients per month on average.

Nick states, “Harness Concierge saves me
1.5 hours per new client in their onboarding alone.”  

This onboarding work is powered by Harness’s tech platform along with the Harness Concierge team, streamlining your firm’s process to send engagement letters, collect e-signatures, and get invoices paid.

With 10 new clients each month, that’s 180 hours per year that the Harness Concierge team saves Nick’s firm. Keep in mind that’s only for client onboarding. The Harness Concierge team provides additional first-line client support throughout the year to help your firm answer client questions that don’t require your tax expertise.*

The Harness Engagement Letter Process

Here’s how our Concierge team manages engagement letters on your behalf:

1. Gather Client Data From Your Tax Firm: Using a consultative process, our Concierge team collects data from you using a questionnaire and data from your HubSpot CRM integration. This information can include but is not limited to, client contact information, what tax filings each client needs, relevant fees, and retainer service information (if applicable).
2. Prepare Engagement Letters: Using an automated process that we built by integrating CRM and e-signature technologies, Harness’s tech formats your firm’s engagement letters with the above information using a template. (Download a Sample Engagement Letter Template)
3. Send Engagement Letters to Clients: Next, our automated communications process sends the engagement letters to your clients for review and e-signature. Our automation technology will also send reminder emails to clients who have not yet e-signed their engagement letters. 
4. Respond to Client Communications: To help save you time, the Concierge team manages all communications with your clients about their engagement letter, only getting you involved when needed to answer tax-specific questions. We handle all the administrative communications for you.
5. Send Retainer Invoice (If Applicable): Finally, if applicable, and based on information collected in step one, after clients have signed, our automation workflow sends an invoice for the client’s annual retainer.

By managing the engagement letter process and more for your firm, the Harness Concierge team can save you hundreds of hours per year, letting you focus on serving your clients’ tax needs.

Want to start streamlining your tax firm’s operations?

Schedule a call with Harness today to see how our modern software, in-house concierge team, curated high-value client introductions, and professional community can support your tax practice.

Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances.

*Mr. Chertock is a tax adviser on Harness’s platform as of 11/19/2024 and was not compensated for this testimonial. However, due to the relationship with Harness, a testimonial from a platform adviser may present a conflict of interest as Harness could indirectly benefit. Mr. Chertock’s comments may not be representative of any other person’s experience with the firm.