Print out the template (poster setting, full size, it should take four pieces of paper) and assemble using tape. Cut out, and then cut 1 3/4" off of the bottom of the template. Set aside, and also save the scraps.
Test the template for fit. You don't want to move onto the next step if it doesn't cover the cone.
The large scrap piece that you cut off the bottom will be used draw a line about 1 3/4" from the bottom of your template! Turns out the cut scrap makes a perfect curved line for you to trace. Cut the bottom portion off your template on the line you just traced using the scissors.
Paint the bottom of the cone with a few coats of acrylic paint, using the skin tone paint of your choice. Let dry.
Place your fabric down on a cutting surface and place the template on top. Use a cutting wheel or scissors to cut the fabric of the hat.
Tape off the bottom of the cone so you don't get any adhesive on the skin of the gnome. Apply spray adhesive to the top portion. Wrap the fabric around, smooth, and let dry.
Cut the faux fur for beards using the template. Trace on the back and then cut. Don't just cut through the faux fur because you'll end up cutting off a lot of the beard fur. Pull the fur forward and away from the back of the fabric when cutting.
Attach a beard piece to the base of the cone using a hot glue gun.
Sand a flat spot on a wood bead using sandpaper. Hot glue the nose in the center where the beard meets the fabric to finish.
Video
Notes
Use spray adhesive in a well ventilated area and check safety information if you are sensitive (you might want to use a mask).