I really hate to butt in here but the problem is NOT the timing or the flywheel key in this instance.
The actual problem is that you have either a valve that is not closing properly or needs to be adjusted or you have a bent pushrod or a valve guide that has popped out.........
The next most likely possibility is that you have a blown head gasket. These engines blow head gaskets very regularly.
The head gasket almost always blows between the piston and the valves. This will push compression past the valve guides and into the other parts of the engine...causing some of the problems you are describing.
This engine is most likely going to have to be taken to a good shop for repair, unless you are a good enough mechanic to do the job yourself.
Here is the
Briggs & stratton Single cylinder OHV service manual
I hope this helps.
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