The gap between the flywheel and the magneto should be 0.012", or the thickness of a standard visiting card.
The way you wired it should produce spark, but it involves extra wire and hence extra uncertainty. Just set the controls in the start position, take the spark plug out of the cylinder head, reconnect the spark plug to its lead, hold the metal base of the spark plug against a bare metal part of the engine (usually the cylinder head) and pull the starter cord. If there is no spark, there is an ignition system fault. Most times, the fault is that for one reason or another, the kill wire is grounded. However there are other possibilities which we can go through once you perform that test.
