Hi Kelly, I do it slightly differently, but that is not to say it's better. However, I think you'd want to attach the belt loop before gluing it up?
1. Make a pattern - I use file folders because they're already folded and nice and stiff
2. Tape the pattern to my leather and trace around it. Use the pattern to trace the welt too. Yes, being sure to orient it right to the leather so you don't get a lefty sheath! I do that too, and use the wasted leather for other projects.
3. Cut carefully right on top of the traced line.
4. Skive the lower center of the sheath to it'll fold nicely.
5. Wet the leather and do any tooling. Immerse in dye while still damp, at least a couple of hours. Let dry overnight.
6. Smooth the belt loop edges. Smooth the sheath's opening edges and attach the belt loop.
7. Glue in the welt, test fit the knife, and square up all the edges of the sheath with a 36 grit belt.
8. Cut a groove for the sewing (not the same process as lacing, I do a saddle stitch on mine). In your case, cut the slots for lacing.
9. For lacing, you wouldn't do this: Using a spacer wheel, mark for punching for the sewing, and drill out the holes with a sharpened nail in the drill press. Cut a groove on the back of the sheath for sewing, following the holes that came through the back.
10. Sew it up.
11. Refine the sheath's edges with a 220 grit belt, and burnish. I use a black Magic Marker to go over all the edges if I've dyed the sheath brown; I use brown dye if I've left the sheath undyed. It's not the best method but it's what works for me consistently.
12. Test fit the knife again. If it's too tight, I wrap the knife in Saran Wrap, wet the sheath, and do some form fitting. Let dry overnight - without the knife in it! Mine rust.
13. Test fit and polish the sheath. I just use shoe polish but I'm sure there's something better, and I'd like to know what it is.
That's how I've been doing it, with "okay" results. I'll be interested to see what others do. I may have to try lacing one of these days too.
Chuck Burrows has a great sheath-making video, produced by Center Cross Instructional Videos. Until I lost mine somewhere I watched it every time I was about to do any leatherwork, just to make sure I didn't do anything really dumb again. Of course, that was no guarantee!