But believe it or not, investors prefer business plans that acknowledge competitors and describe how your company beats them.

Competitive analysis is one of the most important parts of your business plan. Thoughtful consideration of your industry's competitive environment can assure investors that your business is genuinely prepared to mix it up in the marketplace. On the other hand, narrow-sighted, "We have no competition" attitudes are both unrealistic and naïve – and they can seriously jeopardize your credibility with potential investment partners.

Step 1: Competitive Identification

Before you can analyze the competition, you have to identify it. That can be trickier than it sounds. Some of your competitors are obvious – businesses that sell the same products or services in your local area. But there are other competitors that also need to be considered. Internet businesses and even large retailers a few hours away can blindside you if you haven't done your homework.

Step 2: Competitive Research

Once you've identified your competitors, the next step is to collect information that will be useful in the business plan. If possible, visit your competitors' stores and websites to gain insight about their products, pricing, and delivery methods. From there, you can expand your search to include vendor interviews, trade shows, press releases, and trade publications. Sometimes, even customers can be a good source of information. The important thing is to make sure the information you gather is reliable and consistent.

Step 3: Competitive Analysis

Competitive analysis is more than simply listing the names and locations of your competitors. When you write the competitive analysis section, it's important to describe each competitor's share of the market, their product line, their strengths, and any weaknesses you discerned through your research. Many entrepreneurs tend to underplay their competitors' strengths and overemphasize their weaknesses in competitive analysis. Faced with strong competition, some are even tempted to manufacture weaknesses where none exist. Yet honesty is always the best policy – especially during competitive analysis. Every company – no matter how big or small – has weaknesses that savvy business owners can exploit in the marketplace.

Step 4: Competitive Advantage

Your company's competitive advantage is the possibly the most important feature of your business plan's competitive analysis section because it is here that you explain how your business competes with – and beats - the competition. You can do this by filling a market niche, a gap that is currently being filled by anyone else. For example, if your competitors are bigger than you, your niche could be to specialize in reaching a specific segment of the market. Although it's not necessary to engage in a highly-detailed discussion, you need to convince investors that you have located your place in the market.