That's true - the vinyl does shrink some - most of what we do is for an outline effect (such as team numbers, outlined wording, etc), so we just eye the placement of the 2nd color. I can't think of anything we have done that had to be lined up perfectly - so I wouldn't be much help there.
I can attest to the fact that it will shrink and separate though! When weeding one of our transfers, we jerked too fast and a letter "ripped" a little - I thought it would press together and didn't really worry about it, BUT, once it was pressed, it separated a tad, leaving a tiny line showing the shirt color through the letter.
If you were doing a flag, I wouldn't think it would be much harder to do - when you design and cut it, one color would be your main background color and should cut the full size of the flag design- then all you'd have to do is lay color #2 on top, eyeballing the placement, press them and do the same with color #3 and so on.
Being a person who has to actually "see" things and not just visualize, I usually cut one and then lay it out to make sure it will all line up the way I have thought it out in my head! That has helped me out a lot! About a week ago, I was doing a lady bug - red with black spots - cut everything and put it together - low and behold - I weeded it WRONG - so I had a black ladybug with red spots - I kept thinking something just did not look right - and finally my husband clued me in..
what a dummy I was!
You'll have to forgive my terrible explanation - I'm not very good at explaining without visual aids
- as my hubby says - I think everyone should know what I am referring to when I use words like "do-hickey" and "whatchamacallit"
We also do as the above poster - after all colors are pressed, we go back and cover it with the teflon sheet and then do a final press for about 15-20 seconds
Hope I haven't confused you! Good Luck