You can cut the lip slot while the stock is still square. I have never had any problem with "chipping" near the lip slot while turning the wood down to the right shape.
Its a bit tricky to cut it deep enough so that when the stock is rounded via the lathe, the slot is the right depth. With a bit of practice it isn't that tricky though.
Also lathe-made baits are somewhat more forgiving that ordinary cranks when it comes to lip size, angle and installation.
Try to be sure to cut the lip slot on the appropriate side of the stock. You will want the lip slot on the belly of course, and you will want the belly to have the screw eyes installed across the grain for the strongest bond.