There are lots of ways to do things and, as you gain experience, you'll find what works best for you.
Because the fabric will stretch, you need a stabilzer that will hold the fabric still. I'd use an iron on mesh on the back. The excess will be easy to remove by just putting a warm iron in it and pulling it off and cutting it away from the design.
You don't say if you are hooping the fabric or if you can't hoop it because or how little it is, or you don't have a hoop for it. If you can't hoop the fabric, then just hoop a tearaway or a washaway and pin the fabric/mesh sandwich to it. The washaway may be the better choice since you are going to use the "gentle touch backing" to it. You don't what it to get too stiff/heavy with so many layers of stabilizers.
I'd also put a layer of washaway stabilizer on top to keep the stitches from sinking down into the fabric. If you use ashaway/mesh/washaway combo, you'll only have the light weight mesh remaining so after you add the gentle touch you won't end up with a too stiff top.
What type of needle will you use?
i did not hoop the shirt. it is a 12 mo. i used a soft cutaway super strong (probably the wrong kind) but it worked well. then i covered it with the gentle touch backing
Great choice! I was thinking of the infant sizes, but your stitchout looks great!
I usually use polymesh for onsies and t-shirts. Do not stretch. I do not hope the shirts. When I first started, I used temporary spay adhesive on the stabilizer to help hold the shirts in place. Now I just pin and baste. I also use a wss topper. This is just a personal preference as I think it gives a more polished look and adds another layer of stabilizer for denser designs without adding bulk. For onsies, I cover the back with something like the gentle touch backing. Good luck.
Yes, this is what I do too.
Stretchy - cutaway. Non-stretch- tearaway.