The competitive analysis section can be the most difficult section to compile when writing a business plan. Before you can analyze your competitors, you have to investigate them.
The first step of preparing your competitive analysis is to determine who your competitors are. This isn't the hard part. If you're planning to start a small business that's going to operate locally, you can identify your competitors just by driving around or looking in the local phone book. The main question for you will be one of range; if your business plan is centered around the idea of opening a bakery, how far will customers be willing to drive to get fresh buns or bread?
However, it may be that your local business will have also have non-local competitors. If I'm selling office supplies, for instance, I may also have to compete with big-box retailers within a driving distance of several hours, mail order companies, and companies that offer office supplies online. You want to make sure that you identify all your possible competitors at this stage.
Secondly, you need to gather the information about your competition that you need for the competitive analysis. This can be the hard part. While you can always approach your competitors directly, they may or may not be willing to tell you what you need to know to put together this section of your business plan.
You need to know:
What markets or market segments your competitors serve;
What benefits your competition offers;
Why customers buy from them;
And as much as possible about their products and/or services, pricing, and promotion.