Your method of testing the spark plug is correct. Myself I always test the engine electrical system on the bench after I had a bad magneto. This method can be used with the engine installed. Remove chain and sprocket cover. Take a electrical drill (a ratchet and socket can work) and socket, without the plug installed and grounding on the engine, spin the crankshaft with the drill, and watch for a good spark. If grounding is a problem, tale a wire and strip about enough to wrap the bare wire around the base of the plug and the other end around a screw on the engine. I don't do this as I have a vice to hold my engine.
Here I made a test light to test the magneto.
Also since this thread is so long, I don't recall if timing was mentioned. Here is a photo of the magnet at the correct timing position (piston at TDC)