A smaller front (counter)/larger rear sprocket will lower your over all gear ratio. This will give you quicker acceleration at the expense of top end speed. If you do a lot of stop/go city type riding, this may be a good thing. If you primarily ride open or freeway type roads at sustained higher speeds, it may be a bad thing.
Since you are in the rebuilding process, I wouldn't worry about the gear ratio just yet. Get the bike running, ride it for a while, and then decide if a change is needed based on your riding habits. The stock KZ1000 acceleration is adequate for most types of riding. Changing sprockets later is a relatively simple process.
