The recession has unquestionably taken a psychological toll on entrepreneurs. But it's also caused them to brace their businesses for the worst.

A massive 86 percent of small-business owners fear a double-dip recession, according to a quarterly survey by Citigroup. That said, three-quarters of those polled say they are somewhat or very prepared for another downturn.

Between July 19 and August 18, Citigroup surveyed 521 small businesses with revenue of more than $100,000 and no more than 100 employees.

Three in four rate current business conditions as fair or poor, and just 28 percent say business has picked up from a year ago. Still, that number is up 4 percentage points from a year ago.

Some 70 percent of business owners say the recession has forced them to change the way they run their business. The most often cited adjustments were reducing debt (42 percent), increasing cash reserves (40 percent), freezing hiring (34 percent) and delaying expansion plans (32 percent). Two-thirds say their business has been forever changed by the downtrodden economy.

The major way small businesses have survived the slowdown: Long-term client relationships, cited by 62 percent of those surveyed. Other top choices were effectively managing expenses (57 percent) and recession-proof products and services (57 percent).

According to the survey, the biggest challenge to running a business was higher taxes, an issue cited by nearly half of all respondents. Plummeting demand for products and services ranked next at 43 percent, followed by tighter business regulations and the cost of health insurance, which tied at 40 percent.

Hiring freezes will remain constant, with 83 percent saying they'll keep their workforce numbers steady or reduce them. (Seven percent of those surveyed said they planned to trim their employee numbers, down from 8 percent in April.) That leaves 17 percent who are planning to hire – the same as the previous quarter. Nine in 10 said they'd need to see sales increase for at least two consecutive quarters before hiring.

But even such trying times haven't dimmed the entrepreneurial spirit. The survey found a whopping 81 percent of small-business owners say they love what they do, with 75 percent saying they'd start their companies again even if they knew they'd be facing the same economic challenges. That's up 4 percentage points from last quarter's survey. (In a separate survey done by TD Bank last month, 69 percent of American entrepreneurs said they would describe themselves as "very happy," with 61 percent believing they are happier than their peers.)