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I wouldn't reduce before the cutout. I think it kinda defeats some of the purpose.

What I did on Gina's 72 was weld the 3" cut out to the header adapter which was also 3" the same as the collector on the header. It then gets redused to 2 1/2"s for the rest of the system.

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I used about 12" of 3" pipe off the header collector; just enough to get past the trans crossmember. Then used a 3" cutout, with a reducer to 2-1/2" after that, leading to the rest of my system.

FWIW: I'm not a fan of electric cutouts.... seems like a poser accessory to me. But thats just me. The only time I open mine up is when I'm at the track. Takes less than 5 minutes to undo 6 wing-nuts.