Thanks to Trudi for this Frugal Baby Tip!
I've turned 3 of my receiving blankets into flat fold diapers. I just fold them over into a triangle and cut off the excess (well, actually I rip it off, makes for a straighter edge), then I hem that edge over.
Then I have a nice square to work with. Do you have access to a sewing machine? If not, you probably could get away with just ripping and letting the edge fray a little.