Engagement Letter Can Make or Break You

A Business Valuation Expert’s Perspective

Drawing from a presentation at the 2025 NACVA BVFL Super Conference by Glenn Block and Greg Clark, this article explores key elements of effective engagement letters, common pitfalls, and practical examples to guide valuation experts in crafting robust agreements.

In the ever-evolving landscape of business valuation and forensic accounting, engagement letters serve as a cornerstone of professional practice. As highlighted in the 2025 NACVA presentation by Glenn Block and Greg Clark, these documents are not mere formalities. Rather, they are strategic tools that can protect practitioners, clarify expectations, and ensure compliance with professional standards. Drawing from the presentation, this article explores key elements of effective engagement letters, common pitfalls, and practical examples to guide valuation experts in crafting robust agreements.

Disclaimer

The opinions set forth in this article and discussion are for educational and discussion purposes only. Matters vary based on underlying facts and circumstances and are evaluated as such. Comments and content presented herein are not absolute. All readers and practitioners should consult with legal counsel regarding state or venue specific rules when preparing engagement letter templates.

Valuation Standards and Ethical Foundations

The presenters emphasized the importance of aligning engagement letters with practitioners’ specific standards. We utilized an example from the NACVA Professional Standards, particularly Section II (D), which mandates clear understanding and communication with clients. This includes defining the nature, scope, and limitations of services, disclosing conflicts of interest, and notifying clients of significant changes. We reminded attendees that NACVA standards are principles-based, requiring professional judgment and adaptability.

The Role of AI in Engagement Letters

Artificial Intelligence (AI) has become a hot topic in valuation practices. The presentation addressed two prevailing views: one advocating for disclosure of AI usage, and another treating AI as a tool akin to Excel or Word. Judge Yates, in a related session, recommended transparency regarding AI use. Sample language suggested by AI itself includes disclaimers about anonymization, human oversight, and confidentiality protocols. Regardless of disclosure, professionals must retain ownership and responsibility for AI-generated content. Below are a few samples you may want to consider for your engagement letters:

“We may utilize AI-powered tools to assist in legal research, document drafting, and other tasks. This technology can help us provide more efficient and cost-effective services while maintaining the accuracy and appropriateness of our work.”

“While AI tools can be valuable, they are not a substitute for human expertise. We will always carefully review and verify any AI-generated content to ensure its accuracy and appropriateness for your case.”

“All client information entered into AI tools will be anonymized and handled in accordance with our firm’s strict confidentiality and security protocols.”

Additionally, on June 19, 2025, the NACVA Standards Board issued additional and updated FAQs through its professional standards page. As you work through your engagement letter writing process for disclosure regarding AI, we strongly suggest you review these FAQs for guidance. FAQs can be found here https://www.nacva.com/standardsfaq.

Scope of Engagement and Conflicts of Interest

Defining the scope of engagement is critical. We advised including valuation interest, purpose, valuation date, and level of analysis. Conflicts of interest must be disclosed early, with examples ranging from prior tax work to relationships with involved parties. Block shared that he interviews clients and attorneys before accepting engagements to safeguard his credibility.

We suggested the use of tables/charts for sections of the report to improve clarity with an example like this:

Client Name	XXXX
Business Name	XXXX (the “Company” or “ABC”)
Type Entity	S Corporation
State of Incorporation	State
Principal Business Location	City, State
Subject Business Interest	100.0%
Standard of Value	Fair Market Value
Premise of Value	Going Concern
Level of Value	Controlling Interest Basis
Valuation Date	June 30, 2025
Purpose and Intended Use	Potential sale of ownership interest
Type of Engagement	Valuation
Type of Report	Detailed

Restricting Use and Admissibility Challenges

Restricting the use of valuation reports is a protective measure. NACVA sample language warns against unauthorized use, deeming it a material breach. Clark noted that such clauses may shield the valuator in litigation when reports were misused by clients for purposes outside of the scope of the matter. Example language may be something like:

“The resulting Conclusion of Value should not be used for any other purpose or by any other party for any purpose. Client’s use of the valuation report for any purpose except that set forth above shall constitute a material breach of this Agreement.”

Challenges to expert admissibility, especially in litigation, underscore the need for engagement letters to address scheduling, availability, responsibilities for admissibility and legal strategy, and payment obligations.

Fees, Retainers, and Payment Terms

Block provided extensive guidance on fee structures, advocating for dual hourly rates, one for standard work and another for court appearances. He stressed the importance of retainers, recommending evergreen provisions that trigger additional payments as initial retainers are exhausted. Communication is key; monthly updates on retainer usage prevent disputes. Sample language includes clauses for reimbursement of third-party reports, late fees, and non-refundable retainers. Example language:

“Our fees in this matter are based on an hourly rate plus out-of-pocket expenses incurred and are not contingent on the outcome of the case.  Our normal hourly rate is $x00.00 per hour, and court and deposition appearances will be billed at $x50.00 per hour in four-hour increments for each half-day session. As performance of our responsibilities for this engagement may occur over several years, you agree to the payment of any increases in our standard billing rates as of January 1 of each year. Unless otherwise agreed, we will submit our billings on a monthly basis with the understanding that they will be paid in full in 30 days. All past due invoices will be subject to a late charge of 1% per month. We reserve the right to defer rendering further services until payment of past due invoices is received.

You agree to reimburse us for any out-of-pocket expenses we may incur specific to this engagement. This includes but is not limited to any third-party reports (e.g., Integra, First Research, IBISWorld) and databases (e.g., Deal Stats, ValuSource M&A Comps, Bizcomps, Kroll Inc.) that we purchase or subscribe to that we feel are integral to your case and our written report. We require payment in full for all work performed to date prior to our testimony. The obligation to pay our fees is the direct responsibility of ABC, Inc. In order to begin work, we require a non-refundable retainer of $x000.00. The retainer will be applied to your final billing. This retainer is not intended to be an estimate for the total cost of work performed, nor have we provided an estimate.”

Case Study: Avoiding Fee Disputes

While there are many stories both could share, Block shared a real-life scenario involving a gender discrimination case. Despite a signed engagement letter and initial retainer, the client lacked funds for additional court appearances. Block communicated with the attorney, who assured payment upon settlement. However, the case was settled without informing Block, jeopardizing his compensation. Ultimately, he was paid, but the experience led him to revise his engagement letters to include clauses requiring attorney guarantees and escrow arrangements. For more details of the story, watch the live recordings available through the NACVA or join us in December for a live webinar version of our session.

Indemnification and Dispute Resolution

To mitigate malpractice risks, we recommended indemnification clauses limiting liability to fees paid. Dispute resolution options include mediation and arbitration, with sample language specifying venue, governing law, and recovery of legal costs. Documenting discovery, trails, and returned materials is also crucial to avoid liability.

Withdrawal, Termination, and Expiration Clauses

Engagement letters should empower practitioners to withdraw under specific conditions, such as ethical conflicts or changes in legal representation. Block includes clauses requiring prior notice and consultation before clients switch attorneys. Expiration clauses ensure timely retention and prevent overcommitment. A 30-day validity period is standard, with new letters issued as needed.

Electronic Communications and Confidentiality

Modern engagement letters must address digital communication, cloud storage, and confidentiality. We advised defining responsibilities for portal access, authorized users, and data protection. Non-disclosure agreements (NDAs) may be redundant if professional standards already mandate confidentiality.

Conclusion

Engagement letters are more than administrative documents; they are strategic instruments that define relationships, manage risks, and uphold professional integrity. As demonstrated by Glenn Block and Greg Clark, thoughtful drafting, continuous updates, and clear communication can make the difference between a successful engagement and a costly dispute. Valuation experts should leverage available resources, consult legal counsel, and treat engagement letters as living documents that evolve with each case.

---

Gregory M. Clark, CPA, CVA, MAFF, is the Managing Member of GMC & Company. He specializes in valuation, financial forensics, M&A advisory, forensic accounting, damages, and further business and commercial litigation in a diverse range of industries. Mr. Clark serves as an expert witness for complex financial matters related to valuation, marital dissolution, shareholder disputes, damages, business litigation, commercial litigation, lost profits, and further matters requiring financial, valuation, and/or forensic accounting expertise. He is a frequent author and speaker on valuation, litigation advisory, business management, and other financial topics.

Mr. Clark may be contacted at (219) 554-9700 or by e-mail to greg@gmcandco.com.

Glenn Block, CPA, is a partner in the accounting firm of Block & Aldinger and has been employed by the firm since 1982. Mr. Block specializes in business valuations and forensic accounting. Currently, he is serving as an advisor in NACVA’s Leadership Initiative Board (LIB). Mr. Block frequently lectures before groups on different topic matters and has presented at past NACVA, AICPA, and Accounting Today national conferences as well as the PICPA.

Mr. Block may be contacted at (610) 433-6481 or by e-mail to glenn@blockaldinger.com.