I had this issue ("Invalid input for operation: physical_network 'physnet1' unknown for flat provider network.") and I needed to update /etc/neutron/plugins/ml2/ml2_conf.ini to specify my list of physical_network names with which flat, vlan, gre, etc type networks can be created; e.g. under [ml2_type_flat] I set "flat_networks = *" to get around the issue.

Make sure you map the physnet1 to a bridge in your ovs ini file.

[ovs]
bridge_mappings = physnet1:br-eth0

Make sure you have it under the right section [ovs]

[ovs]
network_vlan_ranges = physnet1

In addition to all of that, turn on verbose and debugging in the neutron.conf file and grep the log for "physnet1" as it starts up to see if it is in the log.

[DEFAULT]
verbose = True
debug = True