Engagement Letters That Save You

Welcome to Accountants LawPod, where accounting professionals and law firms converge, hosted by Linda Artesani, Sarah Prevost, and Steven Libhart.

Welcome back, everyone. It's been a little bit of time that we've taken off for this season.

Shh, don't tell them.

Don't tell them, right? Yeah. But we actually, we're going to hit it off hard this next round here and talk about engagement letters. But prior to that, how are you, Linda?

I'm good. I'm just thinking about how we have all these people in our marketing department and all this stuff. And now all of a sudden, we're like being directed to what we should talk about instead of being asked. It's like, you're going to talk about this and you're going to do this. And I'm like, Okay, it works, it works. They know, they know better than we do. So yeah, for sure.

Yeah, and also we are less Steve today. Steve is traveling today.

Yeah, so yeah, well, Steve, Steve can have some time off. And you can see I've got a— I kind of pushed the cat thing over, but apparently now we have to go on the, the kitten. I don't know if you can see him.

I can see him, you can see them.

That's him. Yeah, he's very attached to me. Yeah, yeah, engagement letters. I mean That's a great— it was a great topic in the Law Lab for sure. We— I think that's why it got chosen for to continue on because engagement letters are— well, we're working with lawyers. Let's start with that, right? So that's our niche. And you have to make sure that you're very well protected because if anything comes up, you want to be able to stand your ground. In any industry though, really. I mean, it's really—

Yeah.

I think it's our number one main defense against scope creep.

Yeah, well, and there's a little backstory here of how Linda and I actually really kind of started our genuine friendship was commiserating over something so fear-based and frightening for her.

It was more than fear-based, it was actual fear. It was actual fear.

And we kind of talked through it and we talked through engagement. It started with really engagements, the letter of engagement, what was signed, what wasn't signed. And one big caveat I can tell you Is we're very clear about who needs to sign our engagement letters.

That's the whole thing. That was my whole problem was that I got lazy. I mean, I've been doing this for so many years and never had a problem. And I got lazy. I dealt with somebody who reached out to me that was, was a construction company. And they were in charge of running the show. And then when it came time to pay, this is way back in the Wayback Machine, because I didn't get paid upfront. I think I got paid for part of it upfront and then did some work and then the balance was due at the end. Don't ever do that. And then when it came time to pay, the person came back on and wanted all of the money back. And thankfully, I met Sarah who said, oh no, no, you did the work. You're not giving any money back. I was ready to give it all back just to make the problem go away. And she's like, no, you don't do that. You did the work. You know, this is a total— it was a big misunderstanding. And I think it was really a guy that was a bully. He was running a construction firm and I got the bully side of it.

Yeah.

And plus, I'd been in business for so many years and never had a problem with anybody. And it was just bad all around. Yeah, it still gives me nightmares.

It's still frightening to think about it.

It was awful.

And yes, you did the work and someone is acting on behalf of a firm in good faith. So that's also another thing that's part of your clause. But I do think from that experience, it helped us both kind of look at our own at the time and—

Yeah, and we learned from it, right? We learn from every time something goes wrong. That's what's made our engagement letter grow. Because when you think about it, what is an attorney thinking when they read our contract? You're going to do the books, you're going to make sure I'm compliant. Yeah, generally that's what we're doing. But when you start— how many pages is our engagement now? It's quite long.

It's quite long. And there's some updates that we're going to be making to it as well, because we typically try to—

The world is changing.

It's annual. I've noticed it was a year ago around October that we did some updates We're going to be doing the same thing again. Sometimes you have to move a little faster depending on what kind of rules come out for us. Even though a lot of these IRS rules are stipulated a lot towards the tax people, there are things in there that really do impact us and we need to be acting in good faith and ethically in those. So it's that expectation set that, that's really important.

It—

I know our services are really important. I've seen our colleagues just one sheet, one simple sheet.

Yeah.

We find that we've had people come back and try to redline. We've had folks discuss things, and that's not a problem, but it's a conversation. Why would that be a point of contention? I'm not redlining Xfinity. I'm not a big corporation, but I'm not going to redline Xfinity. And nor do I have— if you ever all notice when you're doing software updates or any sort of update, you actually aren't— able to circumvent those rules. Those terms and conditions are what they are.

So I think too, outlining the duties is important because you don't want anybody to say, well, you said you were going to give me compliant books, and then we turn around and say, well, you didn't give me what I needed to make them compliant.

Exactly.

You didn't move things. So that has to kind of be spelled out in a way that's clear to everybody. And like I said, we just mentioned too, is that the parties, the entity, that all needs to be in the contract. That's really important. Who Especially if you're doing business with a firm that has a lot of partners. Who's the managing partner? Who's the partner who's going to step up in the group and work out this? Because there's always somebody that got the short straw and has to work with the accounting team to kind of set everything up. It's usually the one that really is interested in that. So that person, but you want that earmarked in the conversation that you have in discovery. And then that has to be a big part of the contract, right? It has to be that we're not dealing with 10 people signing a contract. There's one person that's responsible.

Right. One main person.

I think that's important. And then, of course, when's the work gonna start? That's important too.

Yes.

They all think once the ink is barely dried, we're starting the job. And even though Sarah and I say it till we're blue in the face, like, once the contract's signed, then we're gonna start the job. But we are gonna go to our onboarding team and there's gonna be some steps. And it's not instantaneous because we have to put a team in place. We have to gather all the documents. And everybody thinks we're starting the next— as soon as they pay, they think, well, they're going to start tomorrow. And then that's not the case.

Yeah, I know. There's a lot of little nuances, I feel like, Linda, that we've realized. One in particular is the series, like what's going to be the ongoing services separate from the catch-up services separate from the maybe data migration.

Yes.

And listing it all out. And then there's other parts that talk about Timing sequence, like you're saying, and then you go further from there. Okay, when somebody wants to maybe move on, maybe there's a mutual agreement that this is no longer a good fit.

Right.

What does that clause look like?

But also, like we tend to do our contracts on a weekly basis because we're doing the work weekly.

Weekly.

We prefer it that way. It makes more sense. You know, for us, for cash flow, it definitely makes more sense. But it it just makes I think gives a better picture of what the cost is to the even. To the attorney. So they know the value that they're getting. They're not paying for an employee in the seat with all the benefits and all that. They're paying for an outside firm that's very well-versed in this kind of work. And I think that's important.

Yeah.

It's important not only to have the start date, to have the term date. How long is this contract for? Is it for a year? Does it automatically renew? That's important too. And I think when you get into the scope and the nitty-gritty of the engagement, You know, the part with the numbers and all of that. You want to get really specific, like we're going to balance or reconcile X amount of bank accounts because this is gonna lock in for us for our scope creep. 'Cause we've had it happen where, okay, we have 3 bank accounts and next thing you know, the person's got 12 bank accounts.

Yeah.

Or 15 bank accounts. And that's a lot more for us to manage. It's more work, more man hours on our side. So we need it to be very specific in the language of what we've agreed to in the get-go. And that way, if we do have to raise the rate, We can look back and point to our contract saying, this said you had this, now you have this.

I mean, life does happen for those folks, right?

Or they read that book and then all of a sudden they're opening 15 accounts and moving money from A to B to B to C.

I know.

Where'd the money go? The shuffle game.

Yeah. Or a new coach comes in or a new person comes in. A new coach, right.

With attorneys, it's, that's the thing. If you're a bookkeeper working with attorneys, be forewarned that if a coach comes in, It might just upset the apple cart, so to speak, because they come in and things completely change. There's a lot more reports needed. The attorneys will come to you and say, I need this, this, this, and they'll give you a list. And you'll say, well, why do you need those? And then you don't even know there's a coach. And then the next thing you know, when you find out there is a coach, then you say, why do you need all of— why do you need some of these redundant? And then they'll say, I don't know, the coach just said they need them. They don't even know why they're asking for them.

Mm-hmm.

So know that that might be a part of it.

Yeah.

And then all of a sudden when there's a coach involved, then there's hard dates because they're going to meet with the coach. So they have to— you have to work to a specific date. So you want to kind of have that in your engagement too. We would love, we would love it, and we've got quite a large firm now, we would love people to be able to— everybody get their report on the 10th, but that's not realistic. It's not realistic for many reasons. Credit card date ranges.

I was just going to say all of those things, all those little nuances that go on in your file, or you're busy. Let's say you're in trial as an attorney. We can't answer the questions. Well, we'll want to produce a preliminary, but then know that we have to go back and make adjustments. Or maybe we're detailing out the practice area because that's exactly how you want this to look like in your financial records. No problem. That's part of the scope that we— but well, that's part of the scope that they want, right? Okay, fine.

We can do it in Clio. Why?

But if they, if they want it, at the same token though, if we're missing details or someone on your team You skipped a step. Those little things. So every little piece kind of comes together in one area or next. And sometimes when you're starting out, even firms like attorney firms, they'll start out and they'll have their practice area and then maybe they're doing business in a different area. And we asked a question of a firm recently and we said, oh, why can't we do this billing style? Is that in your engagement letter? Will that be supported? And she wanted to make sure that she could add it and talk with the bar or review the bar rules because of her certain area. So these—

As they should.

All these little pieces come together in different businesses.

Plus from our side, not only making sure the details are written out, 8 bank accounts, 3 loans, however many IOLTA accounts we're managing, What are we not doing? We're not doing your tax return. That is not— we love what we do. We let other people do that piece. So, and we have partners that work with us. So it's not like we're not offering that to you, but that's not part of our scope. There's other things, 1099s. Okay, we'll do your 1099s, but there's a fee for that. It's an additional fee because it's really a loss leader for us, but it's part of the We know the world we live in, so that should be in there specifically talking about that. I'm trying to think of the other things that we've had.

There's other things. So I can tell you there's insurance, general liability audits, workers' comp audits.

Yes, payroll.

I mean, handling payroll.

Weirdo payroll.

It's very natural for us to do these things. However, some of those things are not part of the service. And not that just because we're handling payroll, we'll do it either. These are parts of services that are tiny little remedial tasks that appear to be bookkeeper style. One thing I'll tell you, one of the biggest ones we always see is we're going to change apps and we were sold a bag of goods and we need the data to come over.

We're changing our legal tech.

Okay, well, let's talk about what that looks like because it sounds like a switch. It's not a switch. There's a lot of prep. There's a lot of things that go into it. That's not part of your everyday engagement, and you know there's pluses and minuses to this. We have a lot of firms that we've worked with through the years; they need this oversight. They they do not want to be in trouble with any sort of infraction or incompliance, or have bad numbers to drive their business. And oftentimes, sometimes in-house it. They can be pulled in multiple ways, and taking that time and pulling them in different ways doesn't allow the person to really drive that. Or we'll work in tandem with a growing firm that has maybe a top-line executive that's been newly hired, and we want to work with them on the growth model. We have a different viewpoint when we're looking at these things. So, these engagement letters will come up as part of our conversation on behalf of our client. Just as it is for us. And what do we need to do to protect them?

And then how do you handle it if they ask you for it? Let's just say a client has a problem that they didn't handle their— I've had this happen. They were pulling all this money out for their employees' 401. They didn't pay it. And now they've got this issue where you're having to help them through this problem, right? They didn't realize that they were supposed to pay it. How do you help them with that? But then that becomes another engagement. That becomes a change order. Like if a construction company, all right, I want to add 5 more lights to my office, that's going to be a change order. We have to make sure that we spell it out that anything is— because you want to keep it in the legal document space.

Yeah.

Another thing that I think is really important when it comes to legal bookkeeping, legal accounting firm working with attorneys is that you need to spell out, and this is a big one, client responsibilities and their deadlines. Because we've had it happen where everybody's all happy in the honeymoon period where they're giving you everything and then all of a sudden they get busy, they go to trial, whatever happens, and then we're faced with We want to get your work to you on a specific deadline. We don't have all the pieces we need. And then what do you do? You need to make sure that you have in there, if the bank feed breaks, who's responsible? Because they're responsible. And most of these bank feeds, the admin, we don't want that access. That person has to turn it back on. If it's broken, we're a little bit dead in the water on some of these. Sometimes we don't have statements and we are reliant on a client to give us statements. If we have to keep asking for them— Right.

The other part is, and this happens, I have a personal card that I've used for my business and the business pays me back for. Well, we don't have access to that because that personal card is, I don't know, hard to get. Let's just keep it simple. Well, we're reliant on you to provide us that information.

Matter names on client expenses matter names.

Matter names, yeah.

We can put it up in advanced client costs, but if we don't know who it's earmarked for, we'll never be able to reconcile it down to where it belongs or out or clear it. We need that. And that's information that's not so data— date-driven, but it can be. The fact that you may have made these transactions in Clio or LeanLaw where you showed that you paid yourself and then the money sits in undeposited funds or payment to deposits and then you don't move the money, that's an issue 'cause that's a compliance issue. We need that kind of addressed. And some of these are just, they seem like little things.

The other thing too, the other one, this is a kind of a recent thing. I'm just thinking about this as, Somewhat out of scope, but somewhat relevant to how the firm's going to work is they're going to change how they're doing their eat what you kill model instead of—

Yeah, oh, change their compensation plan. Yeah.

Yeah. So that whole new model of compensating people or viewing the financials in that way, it does take a bit of a lift. It's a change of scope for us because we have to change how we're going to track things. To your point, Linda, we have to know every little Little bit to make sure, and so when you get through all of these little pieces and you're trying to help the firm see holistically what is you know what's gonna what's the financials gonna look like for is everyone earning their piece? Are they bringing in their fair share? What's the benchmarks? And then you come to trust and you're transferring over your earnings, and you find out that you overtransferred or you undertransferred, and so it skews the numbers. Crossover years impact this. Monthly, end of month, beginning of next month crosses this. And these become really challenging pieces, especially movement within a firm where you have associates leaving and you've got this new compensation model. You've got to true it all up. There's got to be oversight on this.

Yeah.

And it's not a switch moment. You don't just like, ooh, I'm going to change it in a day. But it does take a little bit of a movement.

And don't you think when you have this paragraph, because we've been dealing with this with quite a few clients, they're not doing their responsibilities, they're not helping us meet our deadlines, they're the stall in the process. And then the stall, after a while, you've got like, we have recurring messaging like, we don't have this, we don't have this. And then it becomes, Evident that 3 months have gone by. And then all of a sudden the client wakes up and says, oh, here's everything you need. You have to explain to them that you've got this cadence and you've got this work assigned by your people. And it has to be in the contract that there's a penalty to this, whether it's a monetary penalty or it's a penalty of your work is going to the back of the pile. It's not going to be done right away because you woke up and gave me 3 months of stuff, because it's not fair to the bookkeeping team if that's what happened.

Yeah.

And I think we have to have that in our contract too.

Yeah, yeah, because if you think about it, being respectful, you took 3 months to respond and just because you dropped it all on meant that they just, oh, hooray, they just moved you to the front and now they're going to do it in a week and you're going to have all the answers and everything magically will come together. No, that's not the case. I mean, respectfully, I would say look at how you do your own work.

Yes, exactly. Yeah. And I mean, they should— I always thought that attorneys would be really good about this because they have the same issue in like say, a divorce case, you have to get this certain paperwork in to get it to be able to proceed with the case. But I guess it's just, it's life and people and, you know, kind of the personalities you deal with.

Depends on your deadlines and what's the priority of deadline, right? And what, you know, some people like to work up to the very end. I get it. We're so busy, all of us. We all have things going on. I'm— we're not saying prioritize us over others.

It's the people who don't go to the airport 2 hours before, Sarah. It's not us. We're the people that are at the airport 2 hours before because we know we don't want to have that chance. But it's the people who run up to the door and it's right before the doors are closing. That's the people we're talking about. I think that's the best way to describe it.

That's the best way to describe it.

Late arrivals, right?

Yeah.

And you want to have your fees, right? You want to have your fees. You want to put in your out-of-scope rate. So if it becomes a scope creep issue, you want to be able to start to maybe put that in. If there's late fees, I mean, you should be getting paid up I was talking to a friend about this the other day. We were talking about different software that we use and I talked about Ignition. And I was kind of not on board with Ignition. I kind of like appeased Sarah because she wanted Ignition because I was doing all this stuff in the background to make sure that all these payments were coming in and making sure that they were there. And if a credit card ran out.

Right.

And she's like, no, we can't do this. We can't sustain this because we've grown to a point I can't imagine doing it now, following the path. And I said she was absolutely right about this software because Does it have a price tag? Yes. But what was my time and the value of my time chasing credit card details with clients where this is done automatically? And I think that's part of, you know, you want to get paid upfront. Ignition, if you can afford it, I mean, and we didn't at the beginning, but if you can afford it, it is worth the money for the software because it's a beautiful presentation and it handles those things. Credit card's running out, we need the numbers, we need you to update it and sends the link.

Well, what about What about just the presentation, like you're saying?

The presentation of your engagement letter is beautiful.

I think about that for attorneys because sometimes you get— and I, I've seen this ourselves as a, a family that had to receive a document, and I was like, oh, this is how the attorney's sending their engagement letter?

Yes, I know.

I didn't particularly like it, um, and I felt like it's too antiquated, even though it's So it was a Word changed to a PDF and through DocuSign?

Yeah.

Why? I don't understand that. I expect that from real estate, given that real estate legal documents have a certain cadence and there isn't really a software sometimes for all of that. My expectation of a firm is that I'm receiving through a portal, a secure portal that I'm going to engage with.

Right.

And we treat it the same way and we are like professions. So I don't know, I've had to think about that.

Work with attorneys and I'm like, you mean I gotta download a Word doc? Yeah, convert it to a PDF so I can add a signature. I mean, I should not have to do all that work. And I think about people like my husband will never be able to do work. He's just like, here, you handle this. So yeah, I think— and also we need to have a paragraph about software access. So—

Oh yes.

I don't think we need— yeah, who owns the data? Who owns the software? And who pays for the seats? Who's the admin? Trying to think of what else we would need to know.

Well, if we do certain services, so we didn't really draw into this, but I'll just use accounts payable. We really do want a protected space. We want an approval process. If it's not Linda or I actually touching the buttons, we want that for our team, our company. our employees to feel secure. And so that, you know, that we actually have a whole workflow that's trusted. And we, we rely heavily on our IT team and our tech and making sure our softwares are— our passwords are locked down and things like that.

So that would be under— actually, when you start to talk about that, you're talking about like confidentiality, cybersecurity. Those are important pieces as well. But yes, in software access. But I don't want to be boxed in because something might come along. I don't want to have to go to my clients to get approval on a software that might be better. You want to have language in there that's pretty much—

Oh, for our tools to use. Yeah, we have our own tools.

We have our own tools, right.

Just like law firms, they have their own tools. And, you know, right now, not to drive into this AI topic, but those tools that we all are using, those softwares have AI in it.

Yes.

We can't control that.

Yes.

That is not an option.

There's a button that is making me go crazy because it keeps popping in my face and getting in the way. But yes, exactly. And then I think we got to look at— there's your legal language, your limitation of liability, termination, which we talked about how— and we found this out the hard way. Do you want to terminate in 45 days? Do you want 45 days notice? You want 30 days notice?

I thought you were going to say—

Do you want to just go goodbye? Sayonara. It's out. Who's going to return records? We have our stops in.

Oh, you're reminding me, I had that thought too. This has happened to us and vice versa. We've received a client from another firm, you know, they're ending their engagement and there's a crossover period that will happen. Services will end here, services will begin here. Linda and I have always led with a respectful approach where we're not going to bombard The other group unless there's like a paid bridge between that allows us to data share respectfully though, only in the sense of what is the client stuff and if that needs to happen. That will come to fruition once in a while.

Mm-hmm.

I feel that there's this gray box that happens, and I could be wrong, but there's an expectation that it's just We'll have access to you at any point, no problem. We can keep peppering you with questions.

No.

It goes both ways. We intentionally lead with, we want to be respectful. If this is— if we've been paid for 2 meetings to have with us, then let's do that. And that way we can get the engagement and do what we can. Obviously, if we have more questions and we need to go back to the client, maybe the client can reach out to you because your level of engagement was with the client and vice versa. And that's how it should be. I do feel like just because we're in the same profession, colleagues just presume that we're just going to openly share.

It's going all back to like, you just do the bookkeeping. That's what they think. It's a generalized— I mean, and another piece that we didn't even touch upon is for a legal bookkeeper, we need to specifically speak to the trust account.

Yes.

How that's going to be handled. Are you going to be maintaining individual ledgers for all of the the money that's inside that trust account. You want to put that in there. Do you want to— are you going to be doing a 3-way bank reconciliation? It's part of compliance, but you want to put that in there. You know, you want to have that spelled out that that's part of what you're selling them.

Yeah.

You know, you're going to— are you going to be part of— is included in managing trust part of the reconciliation package that the bar is expecting at the end of the year? Is there an annual or semiannual paperwork that has to be submitted to the bar? Is the attorney doing that or are we doing that? I think those are important things to say. Maybe speak to what bar association that you're— that's underlying all these, you know, where your attorney practices law. Speak to that because maybe that expands and now you're out of scope and you can add to it. So there's something you might want to consider as well. You might want to talk—

growing firm and you need assistance with things that Like, we're heavily talking about accounting, but there's operational support that we do, obviously. There's a whole slew of things. And who knows, maybe the current person you're engaged with offers that. That is helpful to know. What other services can you assist with? We had in a recent conversation, I met with someone and then my, you know, Linda got the opportunity to meet with this individual and just talked about things that We've seen through our own lens, we've seen entity switches. What does that look like? We've seen growth. What does that look like?

It's so hard to cover every base.

It is.

I mean, if you think about it, for us, it's— there's a lot like, you know, who's going to touch the trust account is, you know, we don't, we don't move funds, but you might want to speak to that, that the attorney is responsible for moving the funds.

Yeah.

There's never going to be any commingling. And, you know, if there's any fees, That will be covered. I mean, you can get into like the nitty-gritty of it, but I think, you know, you want to make sure that it's specifically written in the contract in some way. Yeah, I think that's a great use case for AI too if you're trying to write it. Yeah, it's pretty good with legal stuff. So you might want to tell it what state you're in that you're doing this engagement letter and take your engagement letter and put it in there and see what it maybe sees shortfalls.

A lot of people have, um, you know, their attorneys review it a lot, especially our colleagues that are That were a much bigger size too. And where we're at, I mean, it makes sense to have an attorney review and make sure— I mean, we're in 2 states, we're across the nation, right? So where does mediation happen? Where does all these little clauses that are important to what's going to impact our—

You might even want to speak to the fact that you're not an auditor.

Yeah, we're not.

That's another piece too, because sometimes it's a gray area to an attorney that might seem like all the same thing. Maybe speak to if something does go wrong in a bar audit, you know, because that's going to end up putting more on your plate. Is that additional services? I think that those are like the big key points.

Yeah.

What happens to the records when you do disengage?

Yeah.

Put that in the contract.

Yeah, exactly.

Yeah.

Oh, we can't cover it all in this podcast, but no, it was a lot. So it was good. Thank you.

Yes.

If you enjoyed today's episode, please take a moment to like, share, and leave a quick review. It's the easiest way to help other accountants and attorneys find our little corner of the podcast world. And while you're at it, hit subscribe so you never miss an episode. Have a question or a topic you would love us to cover? Drop us a line at info@accountantslawpod.com, send us a message through our website, accountantslawpod.com, or leave us a comment on any of our socials. Your idea might just make it into a future episode. Want to go beyond just listening? Consider sponsoring an episode and get your company in front of our growing community of accounting and legal professionals who love learning, laughing, and leveling up. And as always, don't forget to join the conversation inside the Accountants Law Lab Mastermind group at accountantslawlab.com, where collaboration meets inspiration every week.