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Have a nice day
I've explained it in the second section of my guide on how to win "Restoring the peace":
https://steamcommunity.com/sharedfiles/filedetails/?id=3354877685
You can dismiss all your mercenaries just before their contracts need to be renewed and then rehire them at the very start of the next month. Though you have to be quick as if you are on accelerated speed and miss the opportunity the Baron will probably snap them up. The main reason for sacking and rehiring mercenaries is to restore the companies to full strength as they do not replace their losses whilst in your service.
So I usually dismiss any under strength companies after a battle and immediately rehire them at the start of the following month.
Note: The Baron does not always hire all the mercenaries available especially at the start of the campaign when his own treasury is low and you can affect this by denying him bandit camps and delaying his expansion. He also only tends to hire when he has a reason to, so he will hire when there is a bandit camp to be taken, or when he is making a Regional Claim. So, for the first few months you will usually see three random mercenary companies a month for hire. But once they start disappearing the Baron snaps them up fast.
1. The Huntsmen: 250 silver for 72 (2x36) elite crossbowmen (yes, they are *that* deadly)
2. The Ravenous Vultures: 110 silver for 108 (3x36) swordsmen
3. The Flock of Crazy Geese: 90 silver for 36 swordsmen, 36 spearmen & 36 archers
4. The Greencaps: 90 silver for 72 (2x36) swordsmen & 36 archers
5. The Battle Brothers: 50 silver for 36 swordsmen & 36 spearmen
6. The Wayward Sons: 45 silver for 72 (2x36) archers
3 of them are usually enough to deal with the baron's armies. His final army only outnumbers your mercenaries if you only ever take 1 territory at a time. Because then, the baron will defend his last remaining territory with 2 armies at once: His usual expeditionary force (1 retinue, 2 swordsmen units, 1 archer unit, 1 band of brigands) and his personal guard (1 retinue, 2 swordsmen units, 2 spearmen units, 2 archer units) for a total of 414 soldiers (which he can reinforce with further mercenaries if you leave any available before you press your claim)
But if you claim Selbitz and Hofstetten at once, he will defend Selbitz with his expeditionary force and Hofstetten with his personal guard, splitting his forces and making it more managable to beat them one after the other.