That is a lot of shrinkage for a 5" cut. I rarely prewash but I wouldn't prewash precuts because if they are from a kit or something predetermined you wouldn't have enough to make the pattern correctly. Curious did you starch and iron the square that shrank so much before you measured for shrinkage? I know sometimes that will help ease the fabric back to the prewash size. And again I know many will not agree but I would not prewash in hot water and dry in a hot dryer.