It may indeed be bad for business, but Libertarians realize that there is another issue at stake. This ban (like most bans) is bad for freedom. It limits the freedom of business owners and patrons alike. Business owners should be free to run their businesses as they like and patrons should be free to light up, so long as it's with the property owner's blessing.
The argument that employees don't enjoy the same choice as patrons on whether or not to enter a smoking establishment is invalid, unless the owner is utilizing slave labor. Employees must weigh the potential health risks of working around smoke against their economic circumstances, but the choice is indeed theirs to make. Life is a constant cost-benefit analysis.
The right to NOT enter smoking facilities was one that my wife and I exercised often when deciding where to dine with our young son. Apparently we aren't the only ones who prefer smoke-free environments. One public poll showed that 70% of Iowans approved of some type of smoking ban. That is a significant share of the market. If more of these consumers had voted with their wallets, rather than seeking the coercive force of government to impose their will on others, then smoke-free bars and restaurants would already abound and a blanket smoking ban would be unnecessary.
Unfortunately, that's not the situation we find ourselves in now. Some Libertarians choose to smoke. Some Libertarians choose not to. But all Libertarians want to live where everyone can breathe free.