When you started your business, you did it because you had a great idea. Or at least, you had a better idea than other people, and you thought you could make a reasonable living at it. You didn't do it so you could monitor the love lives of your employees.
While I encourage you to stay out of your employees' personal lives (do not "friend" them on Facebook, for instance), as the manager or owner of a small business you do need to play morality police, or face the consequences. Here's why.
Sexual harassment is not a laughing matter. If you grew up watching network television, you think the norm of the workplace is everyone cracking jokes filled with double entendre, or even blatant sexual content, and that it's funny when someone gets caught with porn! Oh, the laughter! Until someone sues. Which they can and will. You cannot sit around thinking that everything is fine because everyone is laughing. Sorry. Even if someone thought it was funny yesterday, that same person may not think it's funny today and then you could be in trouble. A policy now of no sexual conduct, discussion, or porn in the office or at work functions, ever, can save your financial hide.
Breaking up is hard to do. I have no problem with people with no hire/fire/evaluation authority dating each other, as long as they don't have regular business contact. However, you need a policy (enforced!) of no dating between levels. Which means you can't date anyone who works for you. Period. Your HR person can't date anyone at the company at all. (Assuming a small business--larger businesses, of course, have HR people who don't have responsibility for all departments.) When the romance is good, it's fine. When a break up happens, everyone is miserable and it can cause a real problem in morale, not just for the unhappy ex-couple, but for everyone around them. So, if people are going to have regular contact (which is often the case in small businesses), dating is out.
Romance can destroy unity. Not between the happy couple, mind you. Nothing is so awesome as being in love. But when Jane spends all days making googly eyes at John, and then makes sure John gets best projects, the best performance appraisals and first dibs at the best clients, (because he's so wonderful!, not because she's biased), everyone else becomes bitter. And angry. And starts to think Jane and John are idiots. And assumes that John's raise has nothing to do with actual performance (even if it does) because he's snogging Jane. Recipe for company unhappiness.
Affairs destroy more than marriages. Sure, you may think the only person you are potentially hurting is your spouse and she'll never find out about it! Whether or not that's true, if you (or another one of your employees) is married and having an affair with someone else, the other employees (whether direct reports or supervisors) will lose all respect for the person having the affair. You don't need everyone in the office to like each other, but you do need everyone to respect everyone. This is a surefire way to lose everyone's respect.
Your clients need to be off limits. We all know the stereotype of the salesperson who does a bit more than sell. Talk about the best way to torpedo your business. Everything needs to be above board at all times. Make this a clear policy from the beginning and you'll save a lot of hassle later on.
It's no fun to have to create policies around dating and sexual harassment, but it's much easier to do it before you have a problem, than it is to wait and address things when something goes wrong.